The U.S. dollar gained against the euro on Monday as traders bought back the U.S. currency as the second quarter ends, though losses in the euro were limited. Over the last few weeks, the euro had benefited from widespread expectations that the European Central Bank will raise rates to 4.25 percent on this Thursday to fight inflation.
On Monday, the euro hit a three-week high in European morning after the release of a record high 4.0 percent Y/Y CPI estimate in June, which is a double of the ECB's 2 percent target, however, the single currency fell to 1.5731 in New York afternoon. Sterling was also benefited by the strong euro and rose to 1.9967 before retreating. The dollar earlier hit a month-low versus a trade-weighted basket of six major currencies at 72.041, but rebounded to trade 0.1 percent higher at 72.463 .
The greenback also rebounded from earlier lows against the Japanese yen and the pair rose from 104.99 and closed near 106.13 in U.S. session. The dollar was on track to gain more than 6 percent versus the yen this quarter, the best quarter since the three-month period ended Dec. 31, 2001. Early in the day, Australia's dollar rose to 0.9668 versus the dollar, which is the highest level since February 1983 but the pair fell afterwards to a session low at 0.79553 before stabilising.
Futures on the Chicago Board of Trade show a 25 percent chance that the Federal Reserve will raise the 2 percent target rate for overnight lending between banks by a quarter-percentage point on Aug. 5, compared with 40 percent odds a week ago.
On Tuesday, economic data releases include Japan Tankan's reports, Australia RBA rate decision, German retail sales data, unemployment rate and change, and PMI manufacturing, U.K. nationwide house prices and PMI manufacturing, eurozone unemployment rate and PMI manufacturing, U.S. ISM manufacturing and construction spending. Canada market is closed on Tuesday as Canada day.