Euro Slides, Dollar Rises After Elections in Germany, New Zealand
September 25 2017 - 5:55PM
Dow Jones News
By Saumya Vaishampayan and Kenan Machado
The euro slid while the U.S. dollar rose Monday after elections
in Germany and New Zealand set the stage for periods of political
uncertainty in both countries.
Chancellor Angela Merkel's conservative alliance won Sunday's
German election, essentially guaranteeing her a fourth term as
chancellor, though a strong showing for the nationalist Alternative
for Germany party suggests Europe's largest economy could face
political turbulence. The AfD party is anti-immigrant and wants to
weaken European integration.
"The waning support for Merkel's coalition partner...combined
with the rise in popularity of the far-right Alternative for
Germany means that the process of building a coalition could take
months and that the resulting agreement will be a much weaker
government in the eurozone's largest economy," said Omer Esiner,
chief market analyst at Commonwealth Foreign Exchange.
The euro fell 0.9% to $1.1847, though it remains up about 13%
for the year.
New Zealand's general election Sunday failed to deliver a clear
result. Party leaders now have to forge alliances to achieve a
ruling coalition, which could result in a either another term for
the current center-right government, or a win for the center-left
Labour Party. The New Zealand dollar dropped 1% against the U.S.
dollar to the $0.7262.
"There is a sense that we are entering a period of political
uncertainty and that is never a good thing, at least for the
currencies of the countries involved," said Ray Attrill, head of
foreign-exchange strategy at National Australia Bank.
Others noted, however, that market moves sparked by recent
political and other surprises have been short-lived.
"Given the relatively muted reaction to the many big recent
shocks, we don't expect much in the way of volatility as a result
of this," Paul Hatfield, global chief investment officer at
Alcentra, which is part of BNY Mellon Investment Management, wrote
in a note.
The WSJ Dollar Index, which measures the dollar against 16 other
currencies, rose 0.3% to 85.82.
The dollar has strengthened in recent days as investors grow
more optimistic on the prospect for U.S. interest-rate increases.
Last week, the Federal Reserve signaled it still expects to raise
rates again this year and three times next year despite weakness in
inflation.
Investors are now pricing in a 68% chance that the Fed raises
rates again this year, up from 58% a week ago, according to CME
Group data. Expectations that U.S. rates will rise help support the
dollar by making U.S. assets more attractive to yield-seeking
investors.
In other Monday trading, the Japanese yen and Swiss franc rose
as tensions between North Korea and the U.S. were reignited. North
Korea's foreign minister said Monday the U.S. had declared war on
North Korea and his country considered all possible responses to be
on the table. Later, a U.S. State Department spokesman said the
U.S. hasn't declared war on North Korea.
The dollar was down 0.3% against the Japanese and Swiss
currencies, which investors often buy amid political
uncertainty.
--Chelsey Dulaney contributed to this article.
Write to Saumya Vaishampayan at saumya.vaishampayan@wsj.com and
Kenan Machado at kenan.machado@wsj.com
(END) Dow Jones Newswires
September 25, 2017 17:40 ET (21:40 GMT)
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