SINGAPORE: The dollar crept off five-week lows on Tuesday, as investors weighed the case for a September rate cut after comments by Fed Chair Jerome Powell and rising odds for the re-election of former President Donald Trump.
The Japanese yen was weaker in Asian hours after Monday's one-month high of 157.165 to the dollar, keeping traders wary of further intervention by Tokyo.
On Monday, Powell said the second quarter's three U.S. inflation readings "add somewhat to confidence" that the pace of price increases is returning to the Federal Reserve's target in a sustainable way.
The comments, likely Powell's last until his press conference after a Fed meeting set for July 30 and 31, shifted rate cut expectations.
Markets now anticipate 68 basis points (bps) of easing this year, with a rate cut in September fully priced in, the CME FedWatch tool showed.
The dollar index, which measures the U.S. unit against six peers, was at 104.3, not far from the one-month low of 104 it touched on Monday.
"Despite dovish inclinations, Powell remained in a data-dependent mode, which is warranted after the Fed has burnt its fingers with inflation running back higher in Q1 after a dovish pivot at the end of 2023," said Charu Chanana, head of currency strategy at Saxo.
"Markets may need to wait longer for the confirmation of their September rate cut hopes, and growth and labour data will be on the radar, such as retail sales today."
U.S. retail sales for June due later in the day are expected to show a decline of 0.3 per cent month-on-month.
The euro was at US$1.0893, just shy of a four-month high touched on Monday, having erased all of the losses of the past few weeks when it came under pressure from uncertainty about the French election.
The focus will be on the European Central Bank's policy meeting on Thursday, when it is expected to hold rates, but attention will be on comments from chief Christine Lagarde to ascertain the timing of the next rate cut.
Markets are pricing in 48 bps of cuts this year.
Japanese authorities kept up their warnings against falls in the yen, with Chief Cabinet Secretary Yoshimasa Hayashi saying they stood ready to take all possible measures in the currency market.
Traders suspect Tokyo intervened in the market in another effort to lift the Japanese currency last week after the cooler-than-expected U.S. inflation report.
Bank of Japan data shows authorities may have spent up to 3.57 trillion yen to prop up the frail yen. Markets will be eyeing fresh money markets data to gauge if Tokyo intervened on Friday as well.
The yen was last down 0.4 per cent at 158.64 to the dollar and was weaker across other crosses.
"The yen was due a pullback anyway," said Kyle Rodda, senior financial market analyst at Capital.com.
"After last week's soft U.S. data and moves to price in a September Fed cut, plus the intervention by the Ministry of Finance, the yen was pretty hot.
It's just cooling off a bit now."
Before last week, Tokyo spent roughly 9.8 trillion yen (US$61 billion) defending the yen at the end of April and early May, official data show, but the unit has continued to slide, hitting its lowest since December 1986 at 161.96 on July 3.
In cryptocurrencies, bitcoin rose 1 per cent to trade just shy of US$65,000, near its highest in a month.
Ether was 1 per cent higher at US$3,466 for a two-week peak.
Cryptocurrencies, along with shares of companies that could benefit from a Trump presidency, jumped on Monday after an assassination bid on the Republican candidate boosted expectations that he would win the November election.
Sterling was little changed at US$1.29625, lurking below its one-year high on Monday, as investors await British inflation data on Wednesday for more clues to interest rate policy.
Among other currencies, the Australian dollar was 0.27 per cent lower at US$0.6741, off a six-month high touched last week.
The New Zealand dollar eased 0.17 per cent to US$0.6064, hitting a two-week low ahead of inflation data due on Wednesday.