Dollar Eases Against Major Currencies

The dollar eased against other major currencies on Monday, taking a breather from its recent rally as the market pondered Japan's intervention risks while UK data provided some marginal support to sterling. Despite the slight pullback, the overall trend has recently favored the dollar, and it remains to be seen if this trend will change, especially with French and UK elections on the horizon. The dollar also faces risks this week with the PCE -- a favorite inflation indicator of the Fed -- due on Friday, expected to show a renewed retreat in the rate of price growth. San Francisco Federal Reserve Bank President Mary Daly emphasized the need for the U.S. central bank to "exhibit care" in controlling inflation and noted the rising risk of unemployment, suggesting no rate cuts should be considered until inflation heads toward 2%.

Market Outlook

In terms of market outlook, the upcoming French and UK elections, along with the U.S. PCE data, are significant events that could influence currency movements. The market remains cautious, waiting for further clarity on these fronts. The Fed's stance on inflation and interest rates continues to be a critical factor. While the dollar's recent rally shows strength, it faces potential volatility from geopolitical risks and economic data releases. The mixed signals from economic indicators and Fed officials underscore the uncertainty in the market.

Currency Summary

EUR/USD

EUR/USD made a brief move above the 10-DMA but failed to sustain gains, settling back below it by New York afternoon trade, though still solidly positive on the day.

USD/JPY

USD/JPY recouped much of its earlier losses, ending near 159.65 after dropping to 158.75.

GBP/USD

GBP/USD struck a high of 1.2698 before pulling back without challenging the 10-DMA above it. U.S. Treasury yields remained stable, holding within recent ranges.

Market Movements

The S&P 500 closed down 0.08% after giving up earlier gains, while WTI rallied on strong summer driving demand and geopolitical tensions. Copper eased due to subdued demand in China and increased deliveries to LME warehouses, while gold firmed, aided by a retreating dollar.

Currency Outlook

EUR/USD

EUR/USD's ability to hold gains will depend on upcoming economic data and geopolitical developments. If the PCE data points to lower inflation, it could support the euro against the dollar.

USD/JPY

USD/JPY is likely to remain influenced by U.S.-Japan rate differentials and potential Japanese intervention.

GBP/USD

GBP/USD may continue to see support from UK economic data, but broader market trends and Fed decisions will play a crucial role.

Overall Dollar Trajectory

Overall, the dollar's trajectory will hinge on a combination of economic indicators, Fed policy signals, and geopolitical events, making the outlook for major currencies a complex interplay of factors.

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