Euro Slides on German Chancellor News

The euro weakened on Monday after a report said that German Chancellor Angela Merkel will not seek re-election as party chairwoman, marking the end of a 13-year era in which she has dominated European politics.

[img desc: Angela Merkel announces she wouldn’t seek re-election]

The euro slipped 0.4 percent to reach a day’s low of $1.136 after senior party sources made the announcement, effectively clearing the way for her Christian Democrats party to groom her successor.

The common currency later bounced off and traded flat on the day at $1.14.

Merkel has loomed large on the European stage since 2005, aiding guide the European Union through the euro zone crisis and opening Germany’s doors to migrants fleeing war in the Middle East in 2015, which is a move that still divides the bloc and Germany.

“The euro has come under some pressure because she is seen as a pro-European force despite being a tough negotiator when it comes to bail-outs,” said Ulrich Leuchtmann, who is a currency strategist at Commerzbank.

Merkel’s weakness at home may limit her capacity to lead in the European Union at a time when the block is dealing with Brexit and a budget crisis in Italy.

The dollar jumped toward a 10-week high against a basket of other currencies as worries about global growth pervaded the markets.

World stocks have sold off in October, beset by worries about corporate earnings and geopolitical uncertainty.

That has lifted the greenbacks, a currency which usually outperforms in risk-off periods but has strengthened only moderately.

“This likely reflects a number of factors, including long dollar positioning and, by the end of this week, some modest repricing of Federal Reserve expectations,” said  Zach Pandi, who is the co-head of foreign exchange at Goldman Sachs.

The dollar index increased 0.2 percent to 96.670 after gaining 0.7 percent last week when it hit a ten-month high.

The dueling tariffs slapped by the United States and China have also lifted the dollar. The market has assumed that while the US economy will be hit by reduced trade, it will be hurt less than its trading partners.

“Keeping the dollar bid this week should be a continuation of strong US data. At the same time, we will be watching developments in China,” ING’s head of FX strategy Chris Turner said.

After weekend data showing Chinese profit growth for the fifth consecutive month in September, China’s offshore yuan softened, though it remained higher than Friday’s trough of 6.977, which is the weakest since January last year, as it inches closer to 7.00.

“Were the 7 level to be breached, we would expect USD/Asia, and probably USD/EM in general, to take another leg higher and the dollar to be big across the broad,” said Turner.

The US economy slowed less than expected in the third quarter, according to data on Friday, as the strongest consumer spending in nearly four years and a surge in inventory investment offset a tariff-related drop in soybean exports.

The safe-haven yen has found some support from a global sell-off in riskier assets as investors unwound carry trade exposures. It increased 0.6 percent last week and on Monday traded flat at 111.96 per dollar.

Investors will be watching the Bank of Japan’s monetary policy announcement that is due on Wednesday.