Euro hits 3-year high on breakthrough for German coalition talks; dollar weak ahead of data


The euro surged against rivals on Friday, hitting its bets levels against the dollar in three years after German lawmakers reached an agreement on a blueprint for a ruling coalition.

The dollar meanwhile, drifted lower ahead of a big batch of U.S. data — retail sales and consumer price inflation, which could influence the Federal Reserve’s interest-rate hiking plans.

What are currencies doing?

The ICE U.S. Dollar Index

DXY, -0.53%

which measures the buck against a basket of six rivals, fell 0.5% to 91.350.

Meanwhile, the WSJ Dollar Index

BUXX, -0.36%

which gauges the greenback against a basket of 16 currencies, dropped 0.4% to 85.11.

The euro

EURUSD, +0.7479%

 shot to $1.2125 from $1.2034 late Thursday in New York. The euro hasn’t traded that high against the dollar since January 2015.

The British pound

GBPUSD, +0.5392%

also shifted higher against the dollar, rising to $1.3604 from $1.3539 on Thursday.

The dollar weakened against the Mexican peso

USDMXN, -0.3689%

changing hands at 19.171 pesos, from 19.274 pesos.

Against the Japanese yen

USDJPY, -0.14%

the U.S. currency bought ¥111.13 compared with ¥111.26 on Thursday.

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What’s driving the market?

The euro shot up midmorning during European trading hours on reports Chancellor Angela Merkel’s conservative CDU party has reached an initial deal with Martin Schulz’s center-left SPD to form a governing coalition. Germany held elections in December in which incumbent Merkel won, but she has since been unable to secure a coalition to rule.

The euro was already higher when that news broke, extending gains from Thursday when the minutes from the ECB’s December meeting revealed that policy makers indicated a possible hawkish shift toward monetary policy in 2018.

For the dollar, traders will focus attention on upcoming and important data. Retail sales for December are due for release at 8:30 a.m. Eastern Time, and economists polled by MarketWatch expect a gain of 0.5% in December, versus a rise of 0.8% in the prior month.

December consumer price inflation numbers are due at 8:30 a.m. Eastern Time. Closely watched core prices are expected to rise 0.2%, following a 0.1% gain in November, according to economists polled by MarketWatch. Headline CPI is forecast to rise 0.1%, after a 0.4% jump in November.

Economic preview: Is inflation ever coming back?

What are strategists saying?

“Expectations for the pending releases are mixed with key indicators suggesting that inflation in the U.S. will print lower — producer prices have declined and gas prices also moved lower — but there’s a good chance that the retail sales data will come in better than expected,” said Konstantinos Anthis, on the ADS Securities research team, in an email to clients.

“Our outlook for the dollar remains bearish in the short-term as it is clear that investors are skeptical over how bullish they will be in 2018 and until they get a better idea on what to expect, further defensive trading should be expected,” Anthis added.

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