Investing.com - The U.S. dollar retreated in early European trade Wednesday after Federal Reserve Chair Jerome Powell flagged progress towards bringing down inflation, while the euro edged higher ahead of the second round of the French parliamentary vote.
At 04:35 ET (08:35 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 105.287.
Dollar slips after Powell’s dovish comments
The dollar slipped lower after comments on Tuesday from Fed head Powell, at a conference in Portugal sponsored by the European Central Bank, reinforced expectations that U.S. interest rate cuts are not far away.
The Fed has made "significant progress" in bringing the pace of price gains back down to 2%, Powell said, noting that the labor market -- a major driver of inflation -- is showing signs of "cooling off," with wage increases easing back towards "more sustainable levels."
“As we had expected, he sounded rather upbeat on disinflation, even though he continued to warrant caution on the next policy moves,” said analysts at ING, in a note. “Markets are now pricing in 18bp worth of easing by the Fed by September, and 45bp in total by year-end.”
The Federal Reserve is set to release later Wednesday the minutes from its monetary policy meeting in June, when the central bank left interest rates unchanged at a more than two-decade high range and signaled that it expects to cut borrowing costs just once this year.
Politics weighs on euro
EUR/USD rose 0.2% to 1.0762, with the euro remaining supported, helped by data showing the crucial services component in eurozone inflation staying stubbornly high, suggesting the European Central Bank would take its time before cutting interest rates again.
The ECB's Christine Lagarde and Philip Lane are set to speak at the central bank’s forum in Portugal later Wednesday, while services PMI data for June in the eurozone, also due later, and are expected to remain in expansionary territory.
The euro has also been helped by the news that opponents of France's National Rally stepped up their bid to block the far-right party from power in Sunday's run-off election.
GBP/USD rose 0.1% to 1.2696, with the U.K. general election taking place on Thursday, with the opposition Labour Party widely expected to return to power.
The U.K.'s tight finances mean any new government will have little room to up spending, potentially removing a catalyst of sterling weakness and keeping volatility contained.
Yen slips to new 38-year low
In Asia, USD/JPY traded 0.2% higher to 161.81, with the pair hitting a near 38-year high, with Japanese officials largely remaining on the sidelines amid the risk of intervention.
Finance Minister Shunichi Suzuki stated on Tuesday that forex moves were being watched vigilantly, but stopped short of giving a clear intervention warning.
USD/CNY edged higher to 7.2735, with the yuan falling to a eight-month low after the lowest reading since October for the Caixin/S&P Global services purchasing managers' index.