Dollar eases against euro as European political jitters subside

NEW YORK, June 17 (Reuters) –

The dollar was modestly weaker against the euro on Monday,
as the common currency recovered from the more than one-month
lows hit last week driven by political turmoil in Europe.

The euro was up 0.1% to $1.0718 on Monday,
rebounding from the six-week low of $1.066775 touched last week
following news of a snap parliamentary election in France.

European markets have been under pressure after
President Emmanuel Macron called for a

snap election

following a trouncing of his ruling centrist party by
Marine Le Pen’s eurosceptic National Rally in the European
parliament elections.

Investors have been contemplating the risk of a budget
crisis at the heart of the euro area, as far-right and leftist
parties gain momentum ahead of France’s snap parliamentary
election, pressuring Macron’s centrist administration

Le Pen sought to allay some of those fears over the weekend,
saying she would not seek Macron’s resignation and that she is
“respectful of institutions,” in an interview with Le Figaro.

Even after the French financial markets endured a brutal
sell-off late last week, European Central Bank policymakers have
no plans to discuss emergency purchases of French bonds, five
sources told Reuters.

“As French markets have begun to stabilize a bit since
last week the euro has responded with a slight touch of
recovery,” Helen Given, FX trader at Monex USA in Washington,
said.

Given, however, said that the trend remained in favor of
the dollar.

“If U.S. retail sales come in weaker than expected
tomorrow, as most data for the U.S. has been in the last few
sessions, we could see a more substantial turnaround, but the
underlying dynamic for the pair is driven very heavily by
geopolitics at the moment,” she said.

U.S. import prices fell for the first time in five
months in May. The unexpectedly benign report from the Labor
Department on Friday combined with other recent data showing
tame inflation readings has helped keep a September interest
rate cut from the Federal Reserve on the table.

The dollar index, which tracks the U.S. currency
against a basket of six others, was about flat at 105.52, around
its highest since May 2.

The Fed published updated projections last week that showed
the median forecast from all 19 U.S. central bankers was for a
single interest rate cut this year.

Minneapolis Federal Reserve President Neel Kashkari said on
Sunday it was a “reasonable prediction” that the U.S. central
bank would cut interest rates once this year and wait until
December to do it.

The pound slipped 0.13% to $1.26715 on Monday, inching close
to the 1-month low of $1.26575 touched in the previous session
as traders await a policy meeting by the Bank of England this
week.

Britain’s inflation pressures still appear too hot for
the Bank of England to cut rates at its June 20 meeting, with a
majority of economists polled by Reuters forecasting the first
cut would not come until Aug. 1.

Meanwhile, the yen remained pinned near a 34-year low
against the dollar after the Bank of Japan on Friday pushed cuts
to bond buying amounts. The dollar was last up 0.3% to 157.895
yen.

Traders remain on watch for signs Japanese authorities might
intervene to prop up the yen.

“All the fundamentals for the pair are in the favor of USD
at the moment, and though some volatility does remain, the
general trajectory has been more steady than we saw in March and
April,” Monex’s Given said.

“I’d expect to see rhetoric from currency officials heat
up around the 160 mark, but as it stands now it would take a lot
for BoJ officials to finance another intervention – at a point,
it might no longer be worth it,” she said.

(Reporting by Saqib Iqbal Ahmed; Additional reporting by Amanda
Cooper and Brigid Riley; Editing by Alex Richardson, Andrew
Heavens and Andrea Ricci)