Investing.com — The dollar consolidated near an 18-month high on Tuesday as elevated U.S. yields continued to provide underlying structural support, while the euro mounted a modest rebound from 17-month troughs following cautious policy remarks from the European Central Bank.
The single currency rose 0.2% to trade near $1.1230, snapping a relentless downward drift triggered by French sovereign bond volatility and persistent Middle East energy cost shocks. Against the Japanese yen, the euro advanced 0.3%, breaking an eight-session losing streak – its longest stretch of declines against the yen since 2024.
The U.S. Dollar Index slipped 0.2% to 102.11, though it remained within striking distance of the 102.21 peak touched in the prior session. Against the yen, the greenback held largely flat around 157.92 as foreign exchange desks weighed signs of persistent U.S. input cost inflation against a softening services-sector footprint.
ECB’s Lane cautions on inflation pass-through mechanics
Providing a temporary floor for the euro, ECB Chief Economist Philip Lane signaled that high regional energy prices have yet to trigger aggressive second-round inflation dynamics across the Eurozone economy.
In an interview with Italian news agency ANSA published Tuesday, Lane emphasized that the strength of any energy pass-through remains highly uncertain.
“We have not seen so far very strong second-round effects. We continue to look at them,” Lane noted, adding that it remains “too simplistic to say we’re in the adverse scenario or the baseline scenario.”
Lane’s measured assessment offered European foreign exchange desks reassurance that the ECB may maintain a deliberate, step-by-step policy approach rather than panicking into overtightening, even as regional consumer price growth remains elevated.
This stance closely mirrors recent commentary from across the Atlantic, where top Federal Reserve policymakers – including New York Fed President John Williams – have similarly staked out an unusually clear case for taking in more incoming economic data and exercising patience before committing to any further interest rate increases.
Thursday’s release of the Federal Open Market Committee (FOMC) meeting minutes will give further insight into the depth of policymaker consensus around a potential autumn rate pause.
“FOMC minutes carry serious weight. If Fed officials strike a cautious tone on further tightening – especially following last week’s sluggish jobs print – the dollar could quickly lose its grip,” said Morton Lo, market analyst at FXTM.
