Key points:

  • The dollar fell slightly by 0.12% against a basket of major currencies to 104.43.
  • The euro rose 0.16% despite dovish statements from the ECB and stagnant business sentiment in Germany.
  • The yen hovered around 157 to the dollar, with Japanese officials concerned about the implications of the yen’s weakness.

On Tuesday, the US dollar showed a slight decline amid a slight recovery in investors’ risk appetite. However, the US currency maintained a strong position relative to its main competitors ahead of the release of key inflation data from the world’s largest economies this week.

This data could have a significant impact on expectations for future movements in global interest rates, making investors cautious and keeping the dollar in a narrow range. Against a basket of currencies, the dollar fell 0.12% to 104.43.

Euro strengthens ahead of ECB comments

The euro advanced 0.16% to $1.0877 despite dovish remarks from European Central Bank (ECB) officials on Monday and data showing stagnation in business sentiment in Germany in May.

Investors are focusing on inflation data in Germany, which will be published on Wednesday, and indicators for the eurozone, scheduled for Friday. These releases could confirm expectations for the ECB to cut interest rates next week, as well as provide clues about the possible timing of further easing of the central bank’s monetary policy.

Among other currencies, it is worth noting the strengthening of the British pound sterling and the New Zealand dollar, which reached highs over the past two months, trading at $1.2778 and $0.6161, respectively. The Australian dollar also rose 0.2%, rising to $0.6668.

Yen exchange rate worries officials

The yen exchange rate fluctuated around 157 per dollar, reaching a level of 156.67.

All three of the Bank of Japan’s key core inflation indicators fell below 2% in April for the first time since August 2022.

Japanese Finance Minister Shunichi Suzuki on Tuesday expressed concern about the negative impact of the yen’s current weakness, repeating Japan’s warnings against excessive currency fluctuations. On the one hand, a weak yen increases profits for exporters, on the other hand, it increases the burden on companies and consumers, causing prices for imported goods to rise.

Over the weekend, financial leaders from the Group of Seven (G7) countries reaffirmed their commitment to a policy of caution against excessively volatile currency movements. Japan interprets the announcement as a green light for possible market intervention to stabilize the yen and prevent it from falling further rapidly.