Dollar gains as a safe haven ahead of Fed minutes

Investing.com - The U.S. dollar edged higher in early European hours Wednesday as weak Chinese activity data hit risk sentiment ahead of the release of minutes from the Federal Reserve's latest meeting.

At 02:50 ET (06:50 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 102.800.

Safe haven dollar boosted by weak Chinese data 

The dollar received a boost, due to its safe haven status, earlier Wednesday after a private survey showed China's services activity expanded at the slowest pace in five months in June, the latest evidence of a faltering post-pandemic recovery in the world's second-largest economy.

USD/CNY rose 0.3% to 7.2384, with the yuan hovering near its worst levels in eight months as this disappointing services data follows a sustained slowdown in China’s manufacturing sector, raising more doubts over an economic recovery in the country, a major regional growth driver.

Fed minutes in focus

That said, dollar gains have been limited as U.S. traders return from their Independence Day holiday and focus on the release of the minutes from the June meeting of the Federal Reserve.

That gathering resulted in the U.S. central bank holding rates steady after 10 straight rate hikes, but indicated that two more increases are coming this year, including one widely expected in July.

The minutes should give investors more insight into the debate over what Fed Chair Jerome Powell has said is an increasingly even balance of risks between doing too little and going too far on policy tightening.

Euro zone services PMI data for June due

EUR/USD traded largely unchanged at 1.0878, ahead of the release of the June services and composite PMI data for the euro zone, which are expected to confirm a slowing in what has been a consumption-led economic recovery.

“EUR/USD appears to have found an anchor around 1.0900, which likely signals some reluctance for markets to take the pair sustainably above the benchmark 1.10 level, given uncertainty about the Fed’s tightening peak, but still mirroring the support offered by the very hawkish ECB messaging,” said analysts at ING, in a note.

Elsewhere, GBP/USD fell 0.1% to 1.2703, ahead of U.K. services PMI data for June, while USD/JPY rose 0.2% to 144.69, still trading below the 145 level that spurred intervention by Japanese authorities last autumn. 

AUD/USD fell 0.2% to 0.6677, weighed by the disappointing Chinese data as well as a hangover from the Reserve Bank of Australia maintained its cash rate at an 11-year high of 4.10% earlier this week and not hiking despite inflationary pressure remaining elevated.