The euro fell sharply in London yesterday against the dollar as investors scaled back expectations for far-reaching economic reform in Germany under a left-right coalition headed by Angela Merkel.
The single European currency in late-day trade was at US$1.2055 against US$1.2125 late Friday in New York.
The greenback was trading at ¥114.28 after ¥113.78 on Friday.
The euro had initially gained on news that the political stalemate in Germany was over and that Merkel would replace Chancellor Gerhard Schroeder.
But unease was generated by news that Schroeder's Social Democrats would have more Cabinet posts than Merkel's Christian Democrats, including the foreign, finance, justice and labor ministries.
As a result, doubts were raised on the market on whether the "grand coalition" between the two parties will lead to substantive reforms that would lift economic growth.
"That's quite a price for the [Christian Democrats] to pay," said Hans Redeker, global head of forex strategy at BNP Paribas.
Uncertainty over the composition of the new government has dogged the euro since the tight Sept.18 election, which led to both Schroeder and Merkel laying claim to the post of chancellor. The German political situation was one of the reasons behind the euro's fall to near three-month lows.
Underlying dollar strength has also played its part, and most analysts predict that upcoming US economic news will provide the greenback with further support.
They said the dollar, which has risen over 10 percent against the euro this year, could be buoyed further this week by US inflation and retail sales data -- although yesterday's US trade numbers will have to be overcome first.
But whatever happens on the trade front, the market is of the opinion that the US Federal Reserve remains on course to raise the cost of borrowing again at its next meeting on Nov. 1, especially after last Friday's better-than-expected US jobs data for last month.
The Fed raised its key Fed funds rate a quarter point for the 11th consecutive time last month to 3.75 percent, and indicated that the US economy was on a steady growth track despite the impact of Hurricane Katrina.
"The dollar continues to build on recent gains after further comments from the Fed at the end of last week suggested once again that there's going to be no let-up in the hawkish stance over interest rates," said Paul Jackson, currency dealer with CMC Group.
"Oil prices are also retreating and although we're still holding clear of the US$60-a-barrel level ... this starts to remove some of the pressures associated with the wider trade deficit," he said.
Elsewhere, analysts said the pound might enjoy some respite this week, especially if yesterday's trade data continues to show an improving trend and today's earnings news shows pay pressures mounting.
Sterling has suffered heavily recently from the perception that British monetary policy was set to diverge markedly from that in the US and the eurozone.
The market remains split on the prospect of another quarter point rate cut from the Bank of England next month, which would take the key repo rate down to 4.25 percent.
EUROPEAN TARGETS: The planned Munich center would support TSMC’s European customers to design high-performance, energy-efficient chips, an executive said Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s largest contract chipmaker, yesterday said that it plans to launch a new research-and-development (R&D) center in Munich, Germany, next quarter to assist customers with chip design. TSMC Europe president Paul de Bot made the announcement during a technology symposium in Amsterdam on Tuesday, the chipmaker said. The new Munich center would be the firm’s first chip designing center in Europe, it said. The chipmaker has set up a major R&D center at its base of operations in Hsinchu and plans to create a new one in the US to provide services for major US customers,
The Ministry of Transportation and Communications yesterday said that it would redesign the written portion of the driver’s license exam to make it more rigorous. “We hope that the exam can assess drivers’ understanding of traffic rules, particularly those who take the driver’s license test for the first time. In the past, drivers only needed to cram a book of test questions to pass the written exam,” Minister of Transportation and Communications Chen Shih-kai (陳世凱) told a news conference at the Taoyuan Motor Vehicle Office. “In the future, they would not be able to pass the test unless they study traffic regulations
‘A SURVIVAL QUESTION’: US officials have been urging the opposition KMT and TPP not to block defense spending, especially the special defense budget, an official said The US plans to ramp up weapons sales to Taiwan to a level exceeding US President Donald Trump’s first term as part of an effort to deter China as it intensifies military pressure on the nation, two US officials said on condition of anonymity. If US arms sales do accelerate, it could ease worries about the extent of Trump’s commitment to Taiwan. It would also add new friction to the tense US-China relationship. The officials said they expect US approvals for weapons sales to Taiwan over the next four years to surpass those in Trump’s first term, with one of them saying
‘COMING MENACINGLY’: The CDC advised wearing a mask when visiting hospitals or long-term care centers, on public transportation and in crowded indoor venues Hospital visits for COVID-19 last week increased by 113 percent to 41,402, the Centers for Disease Control (CDC) said yesterday, as it encouraged people to wear a mask in three public settings to prevent infection. CDC Epidemic Intelligence Center Deputy Director Lee Chia-lin (李佳琳) said weekly hospital visits for COVID-19 have been increasing for seven consecutive weeks, and 102 severe COVID-19 cases and 19 deaths were confirmed last week, both the highest weekly numbers this year. CDC physician Lee Tsung-han (李宗翰) said the youngest person hospitalized due to the disease this year was reported last week, a one-month-old baby, who does not
RSS