Tuesday, 22 November 2016

Dollar slides after 10 days of gains; euro rises

The dollar fell on Monday after rising 10 straight days as investors consolidated gains fueled by the election of a new Republican president who is expected to adopt fiscal policies leading to interest rate increases.

The greenback's weakness benefited the euro, which rose from an 11-month low hit last Friday, with political developments seen easing uncertainty surrounding next year's German and French elections.

Shaun Osborne, chief currency strategist at Scotiabank in Toronto, said the dollar's slide on Monday was just a correction or, at the very least, a consolidation.

"We remain constructive on the outlook for the U.S. dollar in the medium-term at least," Osborne said. "Rising U.S. rates, stronger growth and presumably soon, additional clarity on the economic and fiscal policy outlook contrasts with slower growth and political risks elsewhere, particularly in Europe."

Osborne said any corrections should be limited in the near term, with investors likely to snap up cheaper dollars.

In midmorning trading, the dollar index was down 0.4 percent at 100.84 .DXY. Over the last 10 days, it has posted a nearly 5 percent gain, with investors betting U.S. President-elect Donald Trump's increased fiscal spending would stoke inflation and propel interest rates higher.

Market participants expect the U.S. Federal Reserve to raise rates at its Dec. 13-14 policy meeting.

Meanwhile, analysts said German Chancellor Angela Merkel's announcement on Sunday that she would seek a fourth term, while not a surprise, is viewed as positive for the single euro zone currency.

Merkel is seen as a defender of liberal democracy in the West as investors are worried that a wave of populism and anti-globalization sentiment is spreading across Europe and threatening the breakup of the euro zone.

The euro climbed 0.4 to $1.0631 EUR= after touching its weakest levels since December 2015 on Friday.

Against the yen, the dollar hit a six-month high of 111.18 yen, but was last down 0.1 percent at 110.79.

In France, former President Nicolas Sarkozy was ousted in a party primary from the election race over the weekend. This leaves ex-prime ministers Francois Fillon and Alain Juppe fighting to become the center-right Republicans' candidate for the presidential election in May.

The winner is expected to face National Front leader Marine Le Pen, who opposes the European Union. Some analysts said Sarkozy's defeat had lessened her prospects of winning, easing investor fears about a breakup of the euro zone.

Reference: Gertrude Chavez-Dreyfuss

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