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Dollar slides as euro rises after German political crisis averted for now


The dollar moved lower against most major currencies on Tuesday, with its biggest rival — the euro — climbing as the risk of a major political crisis in Germany receded after Chancellor Angela Merkel struck a deal on immigration.

The ICE U.S. Dollar index

DXY, -0.19%

 was down 0.4% at 94.664, erasing its gain from Monday.

The euro

EURUSD, +0.0859%

 rose to $1.1654 from $1.1641 late Monday in New York. The gain for the shared currency came after Merkel late Monday reached a last-minute deal for tighter immigration control, an agreement seen as taking her fragile coalition away from the brink of collapse. The immigration deal comes after Interior Minister Horst Seehofer had threatened to quit in protest over Merkel’s migrant policy.

“The deal removes the risk of new elections in Germany and preserves the stability that Merkel has brought to eurozone’s largest economy,” said Boris Schlossberg, managing director of FX Strategy at BK Asset Management, in a note.

But the euro “remains vulnerable to further trade tensions with the Trump administration. An escalation of trade tariffs especially against the auto industry would upend the delicate rebound and the send the unit to fresh yearly lows,” he added. “For now, however, the bellicose rhetoric has eased and that provided euro a modicum of support.”

Meanwhile in the U.K., the pound

GBPUSD, +0.3804%

 rallied to $1.3187 from $1.3144 on Monday. Sterling was given a boost after Bank of England policy setter Michael Saunders said rates U.K. interest rates may go up faster than expected.

Also, U.K. construction activity hit a seven-month high. The construction PMI from IHS Markit/CIPS came in at 53.1 in June, better than a FactSet estimate of 52.5.

In Australia, the central bank held rates steady and offered a neutral outlook on the economy, which was enough to send the Aussie dollar

AUDUSD, +0.7493%

 higher. The currency climbed to $0.7397 from $0.7340 on Monday.

The Chinese yuan

USDCNY, -0.2490%

 was trading close to an 11-month low against the dollar as the Washington-Beijing dispute on trade continued. The Trump administration late Monday said it seeks to block China Mobile from operating in the U.S. market, citing “national security interests.” The People’s Bank of China said on Tuesday it’ll keep the yuan stable, seen as an early sign the central bank is ready to intervene to halt the slide in the currency.

The Japanese yen

USDJPY, -0.03%

 was largely flat against the dollar, with the buck buying ¥110.89 compared with ¥110.90 late Monday in New York.

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July 3, 2018

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