The euro moved lower on Tuesday, while the U.S. dollar remained mostly flat. Currency markets weighed stronger-than-expected German industrial data against cautious comments from a senior European Central Bank official.
At the same time, traders waited for fresh signals on the future path of U.S. interest rates.
Euro Weakens Despite German Industrial Rebound
The euro slipped 0.1% to $1.1429. The single currency received some support from stronger German industrial output data, but broader geopolitical risks limited gains.
The dollar index showed little movement. It remained steady after weakening late last week following softer U.S. payrolls data.
German Factory Output Beats Forecasts
Fresh data from Berlin showed that German industrial production rose by 0.9% in May.
That was stronger than expected. Economists surveyed by Reuters had forecast a smaller 0.2% increase.
The rebound was mainly driven by the automotive sector, where production jumped 3.6%.
ECB Official Warns Eurozone Outlook Remains Fragile
The positive German manufacturing data was partly offset by cautious comments from Fabio Panetta.
Panetta, who sits on the ECB Governing Council and also serves as Bank of Italy governor, warned that the eurozone economy remains vulnerable.
Speaking at a conference in Rome, he said the global economy is going through a major structural shift. This could continue to pressure the eurozone outlook.
Panetta also said diplomatic efforts between the United States and Iran may eventually help ease energy prices. His comments followed the ECB’s June rate increase, which was aimed at limiting the economic impact of the conflict.
Middle East Tensions Remain in Focus
Currency traders continued to watch developments in the Middle East closely.
Attention remained on the Strait of Hormuz, a key global oil shipping route. Any disruption in the waterway could affect energy prices and increase market volatility.
NATO foreign ministers are expected to meet Gulf Arab officials in Ankara on Tuesday. The talks will focus on the ongoing deadlock over reopening the strategic waterway.
Yen Hits Multi-Year Low Against Sterling
In the wider currency market, the Japanese yen briefly gained ground after wage data showed continued improvement.
Japanese wages rose for a fifth straight month in May. This kept expectations alive that the Bank of Japan could raise interest rates again.
However, the yen’s recovery did not last. Against the British pound, it fell to its weakest level since 2007.
The move left traders alert to possible intervention from Japanese authorities. Officials in Tokyo have continued to warn against excessive currency speculation.
Fed Minutes Become Main Market Focus
Global currency markets are now focused on Wednesday’s release of the Federal Reserve’s June meeting minutes.
The report is especially important because it will be the first set of Fed minutes under new Chair Kevin Warsh.
Investors will study the document closely to see how many policymakers support keeping borrowing costs higher through the end of the year.
FX Volatility May Stay Limited Before Fed Update
Francesco Pesole, EMEA FX and fixed income strategist at ING, said foreign exchange volatility may remain limited before the Fed minutes.
He noted that the U.S. data calendar is light, which could reduce short-term market movement.
Pesole also said investors may need a stronger reason to bet against the high-yielding dollar, especially while carry trade conditions remain favorable.
