Euro reaches the lowest level since the end of June against the US dollar!
The euro hit a 4-1/2-month low against the U.S. dollar as investors worried about possible U.S. tariffs that would hurt the eurozone economy. The greenback was within striking distance of previous levels immediately after the US presidential election against major currencies as markets focused on Federal Reserve data and speakers and waited for clarity on future US policy.
Analysts expect moves by President-elect Donald Trump to put upward pressure on inflation and bond yields while limiting the Fed's aim to ease policy. However, they see investors trading economic data and clues about the rate outlook before seeing what Trump's policies would actually be in practice.
Market participants pointed out that the euro's sensitivity to the threat of higher US import tariffs was evident late on Friday, when media reported that Trump was lining up Robert Lighthizer, seen as a trade hawk, to lead policy his trade. However, two sources familiar with the matter said Lighthizer has not been asked by Trump to return to the agency that oversees trade policy.
The single currency fell 0.3% to $1.0685, after hitting $1.0679, its lowest level since late June. The dollar index was 0.3% stronger at 105.32. Last week, it jumped more than 1.5% to 105.44, the highest since early July, after US presidential election results showed Trump's victory. The dollar regained 0.8% against the yen at 153.82, retreating from last week's peak of 154.70 on the risk of Japanese intervention. On November 6 it reached 154.68, its highest level since July.
A summary of opinions from the Bank of Japan's October policy meeting showed some members were unsure when to raise rates. The decision will not be made easier by political uncertainty as Japanese lawmakers must decide on Monday whether Prime Minister Shigeru Ishiba remains leader after his coalition lost its parliamentary majority late last month.
The rate outlook will be crucial for the greenback in the near term as all major central banks are easing their monetary policy. US consumer prices are due on Thursday and a core reading above the 0.3% forecast would further reduce the chance of a Fed easing in December.
JPMorgan said it revised its US terminal rate forecasts to 3.5% from 3% and expected a 25 bps cut by the Fed every quarter, starting in December. The US bond market is closed for a public holiday, although stocks and futures are open. Citi expects US rates to stay close to current levels in the near term as the market is caught between expectations for significant policy changes in 2025 and the easing cycle, which is driven by short-term data. Politics remained a sticking point in Europe after German Chancellor Olaf Scholz said he would be willing to call a confidence vote before Christmas, paving the way for early elections.
Analysts argued that the risk of policy changes in Germany that could lead to looser fiscal policy is growing next year. Disappointment in the latest package had seen the Australian and New Zealand dollars fall on Friday as both countries are major exporters to China. The US dollar hit an offshore yuan, its highest since early August at 7.2131, up 0.25%, rising 0.70% on Friday after falling 0.75% a day before.
Underscoring the gloomy backdrop in China, data released over the weekend showed that consumer prices rose at the slowest pace in four months in October, while output price deflation deepened. Bitcoin surged to a record high above $81,000 on Monday on expectations that cryptocurrencies will thrive in a favorable regulatory environment following the election of Trump as US president and pro-crypto candidates in Congress.
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