The U.S. dollar edged higher in early European trade Tuesday, recovering after recent losses, while the euro dipped ahead of key inflation data.

At 04:30 ET (08:30 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 105.700, bouncing from a one-week low seen earlier in the week.

Dollar receives Trump boost; Powell set to speak

The dollar index has climbed as the prospects of a second Donald Trump presidency have risen over the last few days, boosted by President Joe Biden's faltering debate performance last week as well as the Supreme Court's ruling on Monday that Trump has some immunity from prosecution over attempts to overturn his 2020 election loss.

"It is now clear that investors have made the Trump-stronger dollar link. This has also been our interpretation given the prospect of lower taxes, inflationary protectionism measures and greater geopolitical risks under Trump,” said analysts at ING, in a note.

There are more clues about future Fed monetary policy decisions due this week, starting with Fed Chair Jerome Powell speaking at a European Central Bank conference on Tuesday.

The minutes of the Fed’s June meeting are due on Wednesday, while nonfarm payrolls data for June are due on Friday, and are set to offer more insight into the labor market - a key consideration for the Fed in cutting interest rates.

Economists are expecting the U.S. economy to have added 189,000 jobs in June after a larger than forecast gain of 272,000 the previous month.

Euro waits for inflation release

EUR/USD fell 0.2% to 1.0716, ahead of the release of June inflation data for the eurozone later in the session.

The headline figure is expected to grow 2.5% on an annual basis, a drop from 2.6% in May, while the core number, which excludes volatile food and energy prices, is seen at 2.8% annually in June, down from 2.9%. 

“That is probably not enough to trigger a major repricing in rate expectations, but could soften the hawkish pushback by European Central Bank officials,” said ING.

ECB President Christine Lagarde will deliver remarks today at the central bank’s annual meeting in Portugal, which could change future interest rate expectations.

Politics will remain in the spotlight this week, after the far-right National Rally won the first round of the French parliamentary elections on Sunday.

The chances of eurosceptic, anti-immigrant RN winning power next weekend though remain uncertain, and will depend on the political dealmaking by its rivals over the coming days

“The relief rally in the euro following French election results being in line with expectations ran out of steam yesterday, and we doubt there will be significant extra support for the common currency given the open questions ahead of the second round on Sunday,” added ING.

GBP/USD fell 0.2% to 1.2627, with the U.K. general election taking place on Thursday, with the opposition Labour Party widely expected to return to power.

Such a result could see a return to stability after heavy political turbulence during the Conservatives' 14-year rule, likely boosting sterling.