Investing.com -- The dollar showed signs of a modest bounce in early trading in Europe Friday on a weaker-than-expected business survey from Japan and persistent fears of conflict between the U.S. and Iran.
However, the greenback remained under pressure in the wake of the Federal Reserve’s signalling in midweek that it was prepared to cut interest rates if the U.S. economy slowed.
At 03:00 AM ET (0700 GMT), the dollar index, which measures the greenback against a basket of six major currencies, was up less than 0.1% at 96.67, having dipped overnight to as low as 95.998 – its lowest in three months.
The global economy continues to show signs of weakness: the preliminary reading for IHS Markit’s June purchasing managers’ index for the Japanese manufacturing sector fell to 49.5, representing a third straight month of contraction. Annual inflation, meanwhile, remained stuck at 0.7% in May.
The dollar fell to a 14-month low overnight against the yen as carry trades were unwound in the wake of Iran’s shooting down of a U.S. Navy drone. Reports suggested that U.S. President Donald Trump had approved strikes on Iranian facilities in retaliation, before changing his mind. By 3 AM ET, it had rebounded a touch to 107.30.
In Europe, the euro traded higher despite the failure of European Union leaders to decide on a new president for its powerful executive branch, the European Commission, at their latest summit. The failure also makes a quick decision on the next president of the European Central Bank less likely, given the bloc’s tradition of distributing its top jobs across its membership. The euro was fractionally higher at $1.1288.
The pound was also broadly stable as markets digested the significance of the latest developments in the Conservative Party leadership contest. Party members have four weeks to choose between Boris Johnson, who has promised to take the U.K. out of the EU without a transitional deal on Oct. 31 if the EU refuses to reopen negotiations on Theresa May’s Withdrawal Agreement, and the current Foreign Secretary Jeremy Hunt, who has taken a less aggressive line on Brexit. The pound was down less than 0.1% against the dollar at $1.2692.