On Monday, the dollar strengthened while the euro hovered near its lowest point in over a month, driven by ongoing concerns over Europe's political outlook.
Markets are also gearing up for a series of key economic data releases from China, with investors eager to gauge the growth momentum of the world's second-largest economy.
The euro held steady at $1.0703 against the dollar, having recovered slightly from Friday's low of $1.06678, its weakest since May 1. Last week, the euro experienced its largest weekly decline since April, dropping by 0.88%.
Investors are wary due to the rising influence of far-right and far-left parties ahead of the unexpected French parliamentary elections, which has pressured President Emmanuel Macron’s centrist government and raised fears of a budget crisis in the Eurozone’s core region.
According to five sources cited by Reuters, despite the sharp sell-off in French financial markets late last week, European Central Bank policymakers are not planning to discuss emergency purchases of French bonds.
While political turmoil weighs on the euro, "the euro’s decline indirectly benefits the dollar because the euro constitutes about 57% of the dollar index," noted Matt Simpson, Senior Market Analyst at City Index.
The dollar index, which measures the dollar's performance against a basket of currencies, was steady at 105.49, after hitting 105.80 on Friday, its highest since May 2.
Minneapolis Federal Reserve President Neel Kashkari stated on Sunday that it is "reasonable" to expect one rate cut this year, likely around December.
The Fed’s latest forecast indicates a median expectation among all 19 Fed policymakers for one rate cut this year.
This week, limited major U.S. economic data offers little clarity for the Fed's outlook. However, Tuesday’s U.S. retail sales data and Friday’s preliminary PMI data could provide some insight into consumer behavior and economic strength.
Simpson from City Index remarked, "With FOMC discussions still fresh in investors' minds, actual data would need to significantly underperform to rekindle bets on further rate cuts by the Fed."
The British pound traded at $1.2687, up 0.04% on the day. Persistent inflation pressures in the UK mean the Bank of England is unlikely to cut rates at its June 20 meeting. A Reuters poll of 65 economists indicated that 63 believe the first rate cut won’t come until August 1.
The Bank of Japan surprised markets last Friday by maintaining its bond-buying program unchanged, deferring the specifics of reducing bond purchases to the July policy meeting, which left the yen struggling.
However, Bank of Japan Governor Kazuo Ueda noted that he does not rule out the possibility of a rate hike in July, citing the impact of a weak yen on import costs.
The yen last traded up 0.05% against the dollar at 157.41, after dropping to 158.26 on Friday, its lowest since April 29.
At the end of April, the yen hit a 34-year low of 160.245 against the dollar, prompting multiple rounds of official intervention totaling 9.79 trillion yen.
Japan's Cabinet Office reported on Monday that core machinery orders fell by 2.9% month-on-month in April.
Ahead of domestic data releases in the Asian session, the offshore yuan was steady around 7.2699 per dollar.
In cryptocurrencies, Bitcoin last traded up 1.62% at $66,794.00.