The U.S. dollar rose on Monday, moving away from the one-year low recorded the previous week, while poor data on economic activity in the euro zone weighed on the euro.

Dollar on PCE watch

The U.S. dollar has somewhat recovered from the massive sell-off that followed the Federal Reserve’s sharp rate cut last week, and traders appear to be dismissing the possibility of a U.S. recession.

“So far, investors have bought into the soft landing narrative offered by Chairman Jerome Powell last week,” ING analysts said in a note. “And rather than the 50 basis point rate cut spooking equity markets, the major benchmark indices have continued to push higher.”

Futures traders are currently pricing in 75 basis points in rate cuts by the end of this year and nearly 200 basis points by December 2025, according to CME FedWatch.

This week’s main economic data release on Friday is the Fed’s favorite indicator, core personal consumption expenditures.

Analysts are estimating a month-on-month rise of 0.2%, which would put the annual pace at 2.7%, while the overall index would slow to 2.3%.

“A core CPI of 0.1% on Friday could trigger another drop in U.S. rates and the dollar,” ING added.

Euro Hit by PMI data

In Europe, the EUR/USD fell around 0.5% to 1.1111 after news that business activity in Germany contracted in September at its fastest pace in seven months, signaling that the eurozone’s largest economy may have entered a recession.

Germany’s HCOB composite purchasing managers’ index by S&P Global fell to 47.2 from 48.4 in August, below the estimate of 48.2.

The European Central Bank cut rates for the second time in 2024 at the start of the month, and further signs of economic weakness could increase the odds of another rate cut in October.

“This is not a good environment for the euro, nor for EUR/USD to break above the main resistance at 1.12. Further consolidation of EUR/USD in a range of 1.11-1.12 seems likely, with downside risks early this week,” ING said.

GBP/USD fell nearly 0.4% to 1.3264, losing some of its recent gains after touching its highest level recorded since March 2022 the previous week.

The Bank of England kept its policy rate unchanged at 5% on Thursday after starting its easing with a 25 basis point cut in August.

“There is a sense that sterling’s long positioning is quite extreme,” ING said. “However, the latest CFTC data released last Friday covering activity through last Tuesday (Sept. 17) actually showed a fairly large reduction in long sterling positions by the speculative community.”

Yuan loses ground slightly after PBOC cut

USD/CNY rose 0.1% to 7.0595, with the yuan losing ground after the People’s Bank of China cut its 14-day repo rate to continue easing monetary conditions and be supportive of economic growth.

USD/JPY fell about 0.1% to 143.72, with moderate trading volume due to a holiday in the Japanese market. Despite this, the yen remains near its strongest levels of 2024.

The Bank of Japan held interest rates steady the previous week and noted that it expects inflation and economic growth to rise steadily.