The US dollar found stability during the early hours of Tuesday’s European session, impacted by the holiday mood. However, the Australian dollar experienced a slight retreat following the Reserve Bank’s decision to keep interest rates unchanged at its recent policy-setting meeting.
At 03:00 ET (07:00 GMT), the Dollar Index, which monitors the greenback against six other currencies, showed a marginal decrease, trading at 102.612.
Dollar Remains Range-Bound Amid Holiday Lull
With US markets closed in celebration of Independence Day, the dollar is expected to remain within narrow ranges on Tuesday. This quiet period could be short-lived as the week concludes with significant employment data, which might influence the Federal Reserve’s future moves.
Yesterday, the greenback weakened after the release of disappointing manufacturing data. The Institute for Supply Management’s manufacturing PMI fell to 46.0 in June, down from 46.9 in May, marking the lowest reading since May 2020.
Although the ISM survey indicates an economy in recession, it might not be sufficient to deter the Federal Reserve from resuming its tightening cycle later this month. The central bank could proceed with tightening measures if Friday’s official employment report suggests that the labor market remains robust, considering the persistent inflation above target.
RBA Holds Rates Steady, Leaves Door Open for Further Hikes
Following the Reserve Bank of Australia’s decision to keep the cash rate at an 11-year high of 4.10%, the AUD/USD pair edged up by 0.1% to 0.6678. The central bank stated that it needs more time to assess the impact of the 400 basis points of hikes implemented since May last year.
However, the Reserve Bank reiterated its caution that additional tightening may be necessary, as inflation remains high and is expected to persist in the near term.
German Exports Decline in May
Despite the decline in German exports throughout May, with EUR/USD trading relatively unchanged at 1.0910, it suggests a challenging trading environment for Europe’s manufacturing powerhouse.
Nevertheless, the European Central Bank is anticipated to continue its series of interest rate increases, potentially implementing another hike later this month.
“As I see it, we still have a long way to go,” remarked Governing Council member Joachim Nagel, who serves as the president of Germany’s Bundesbank, during a speech in Frankfurt on Monday.
Elsewhere, GBP/USD increased by 0.1% to 1.2705, as the Bank of England is also expected to continue raising interest rates due to the country’s inflation rate remaining at 8.7% in May, the highest among major advanced economies.
USD/JPY declined by 0.2% to 144.39, with the yen hovering near seven-month lows. Market participants continue to monitor the government for any potential intervention in currency markets.
Finance Minister Shun’ichi Suzuki stated on Friday that Japan would take appropriate measures in response to excessive weakening of the yen.