Dollar approaches week high as euro slides because of political uncertainty in Germany

PUBLISHED : Tuesday, 21 November, 2017, 7:42am
UPDATED : Tuesday, 21 November, 2017, 7:45am

The dollar touched its highest against a basket of major currencies in nearly a week on Monday as the euro weakened on political risks linked to German Chancellor Angela Merkel’s failure to form a three-way coalition government.

Merkel, whose conservatives were weakened after they won an election in September with a reduced number of seats, said she would tell the German president that she could not form a coalition, after the pro-business Free Democrats withdrew from negotiations.

Merkel touts new German elections instead of unstable minority government, after coalition talks collapse

The development thrust Germany, Europe’s biggest economy, into a political crisis that raised worries among investors of a new election if Merkel cannot form a minority government.

The news revived “a key risk factor” for the continental currency, said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

“With the euro losing favour, given the messy can of worms that has been tipped over in Europe, that’s helping the US dollar weather its own political uncertainties,” he said.

The dollar index rose to 94.104, its highest since November 14.

The dollar also climbed against the Japanese yen, rising to a session high of 112.72 yen, climbing with US stocks as traders took risk-on positions.

The Swiss franc, also favoured in times of market risk aversion, fell against the dollar. The US currency was last up 0.45 per cent at 0.9928 franc.

The euro fell to US$1.1720 following news of the failure to form a coalition German government. It dipped sharply against the yen to 131.16 yen, its weakest since September. 15.

Bitcoin was trading at just above US$8,100 after hitting a record high of US$8,226 on the Luxembourg-based Bitstamp exchange on Sunday.

Many analysts expect this to be a relatively calm week of trading, with US markets closed for the Thanksgiving holiday on Thursday and with few major data releases.

Traders will await a speech by Federal Reserve Chair Janet Yellen late on Tuesday and the release on Wednesday of minutes from the Fed’s November meeting for clues on the direction of US monetary policy.