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Dollar Inches Higher as Traders Eye Rate Cut Clues; Euro Stabilizes

The dollar rose slightly on Tuesday as traders awaited U.S. retail sales data and comments from Federal Reserve officials, seeking clarity on the timing of potential interest rate cuts. Meanwhile, the euro steadied following its politically driven decline last week.

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The U.S. dollar index, which measures the currency against six major peers, increased by 0.18% to 105.46, recovering from Monday’s 0.2% loss and pulling back from Friday’s six-week high of 105.80.

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The greenback has experienced mixed influences recently, with mild U.S. inflation readings contrasting with the Federal Reserve’s overall hawkish stance. Last week’s policy meeting saw officials trim their median projection for rate cuts this year from three quarter-point cuts to just one.

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A significant factor in last week’s 0.6% dollar rally was the euro’s sharp selloff. This followed French President Emmanuel Macron’s surprise call for a snap election after his centrist party was defeated by Marine Le Pen’s eurosceptic National Rally in the European Parliament elections.

The euro has since stabilized, down 0.1% at $1.0724 after climbing 0.26% on Monday, recovering from Friday’s six-week low of $1.0668.

Over the weekend, France’s Le Pen said she would be ready to work with President Macron and would not seek him out,” said Mohit Kumar, chief economist for Europe at Jefferies. “A portion of the recent risk-off moves were driven by fears of ‘Frexit’ and euro area breakup, but those fears are overblown.”

Upcoming U.S. retail sales data, expected at 1230 GMT (8:30 a.m. ET), is projected to show a 0.3% month-on-month increase in May following zero growth in April.

Philadelphia Fed President Patrick Harker indicated on Monday that he supports a single rate cut but is open to changing his view based on incoming data. A number of other Fed officials, including the Boston Fed’s Susan Collins and the Richmond Fed’s Thomas Barkin, are also scheduled to speak later in the day.

“Despite the paring of rate cut projections by officials, U.S. inflation and labor market data point to a potential policy shift at the Fed,” said Rodrigo Catril, senior currency strategist at National Australia Bank. “The dollar’s safe haven appeal has been supporting it.”

The dollar rose 0.25% to 158.12 yen, approaching Friday’s six-week high of 158.26. The British pound slipped 0.2% to $1.2678.

The Australian dollar remained steady at $0.6618 despite the Reserve Bank of Australia’s decision to hold rates, which was widely expected. “The RBA’s stance was well-communicated: they’re waiting for more inflation data,” said NAB’s Catril.

In the cryptocurrency market, bitcoin fell about 1.1% to $65,600, nearing a one-month low.

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