The US dollar fell in early European trading on Thursday, giving up some of the gains it made in the previous session, while the Japanese yen fell into intervention territory.
At 12:34 Riyadh time, the dollar index, which measures the greenback against a basket of six other currencies, was trading down 0.1% at 105.91.
Dollar falls ahead of presidential debate
The US dollar fell in trading on Thursday, after recording gains of about 0.4% during the previous session, approaching its highest levels in two months.
Federal Reserve Governor Michelle Bowman on Wednesday reiterated her core view that inflation will fall further as interest rates remain steady, and that a rate cut would eventually be appropriate if inflation moves sustainably toward 2%.
Federal Reserve officials have repeatedly called for more data showing falling inflation before agreeing to cut interest rates, putting Friday's PCE price index data in the spotlight.
This is the central bank's preferred measure of inflation, and should show whether the emerging slowdown in inflation is continuing.
The first presidential debate between Joe Biden and Donald Trump will also receive significant attention ahead of their November election debate.
“Our base case is that Trump is the most positive candidate for the dollar due to his protectionist pledges, geopolitical stance and tax cut plans, but markets have not had a real opportunity to trade on the back of US political news as monetary policy has dominated,” analysts at IGG said in a note.
Any movement in the FX market based on the perceived winner of the debate can help us calibrate the coefficients of the market reaction function in November.
Euro unattractive ahead of French election
The euro-dollar pair rose 0.1% to 1.0688, rebounding 0.1% to 1.0688, rebounding by a touch after trading at 1.0666 in Wednesday's trading.
French elections are due to begin this weekend, with political turmoil in France following the shock snap election of President Emmanuel Macron weighing on the single currency.
ING analysts added: “The euro remains unattractive until clarity on the French vote is clear (bearing in mind that this may not come before the second round results on July 7).
The next key levels are 1.0650 and 1.0600 for EUR/USD. These levels could also be reached on the back of some post-US debate action overnight, although we expect US core PCE to rise 0.1% m/m tomorrow to send EUR/USD closer to 1.0700 than 1.0600 over the weekend.
Also, the GBP/USD pair rose 0.1% to 1.2631, with the pound trading in a tight range ahead of next week's general election, with the currency's future largely dependent on the next government convincing fickle investors that its plans to fix the stagnant economy are credible.
Yen Weakens Despite Warnings
In Asia, the Japanese yen/US dollar pair was trading down 0.1% at 160.59, after the yen touched its weakest levels against the dollar since December 1986 on Wednesday.
Pressure on the Japanese currency has continued, despite repeated warnings from Japanese officials of possible intervention to counter excessive volatility.
Japan's top currency diplomat, Masato Kanda, said Japanese authorities are very concerned and on high alert about the rapid decline of the yen.
He added that having already spent $61 billion on official intervention in the foreign exchange market and having the USD/JPY pair return to 160 (and above) in less than two months before the first operation, the finance minister's moves should be carefully evaluated.
What was clear was that interventions in the foreign exchange market were a temporary measure to reduce volatility, not a solution to a structurally oversold currency.
Also, the USD/CNY pair rose marginally to 7.2689, hovering at a seven-month high on Thursday, after a seventh straight weak mid-term fixing by the People's Bank of China.
