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Currencies: Dollar gains, pulls euro back from $1.20 target

November 28
01:04 2017

The U.S. dollar traded lower Monday, but pared some losses against its main rivals following better-than-expected home sales data.

Meanwhile, the euro, which had edged closer to the psychologically important level of $ 1.20 on optimism over the German economy and hopes for an end to the country’s political stalemate, pared its gains.

Where are currencies trading?

The ICE U.S. Dollar Index DXY, +0.07%  was 0.1% lower at 92.727. The WSJ U.S. Dollar Index BUXX, -0.01% which measures the buck against a broader range of currencies, was 0.1% weaker at 86.32.

They euro EURUSD, -0.2347%  was little changed at $ 1.1930 following the dollar’s resurgence. The shares currency broke through $ 1.19 for the first time since late September on Friday.

Against the Japanese yen USDJPY, -0.46% the greenback fell to a new two-month low earlier in the session. One dollar last bought ¥111.17, down from ¥111.57 on Friday, but off session lows.

The Australian dollar AUDUSD, -0.0919% which had strengthened on Monday on the back of higher iron ore prices, which is one of Australia’s biggest commodity exports, also pared its gains as the dollar moved higher. The Aussie last fetched $ 0.7610, down from $ 0.7615 late Friday in New York.

The British pound GBPUSD, -0.0600%  defended its gains against the buck, despite Brexit headlines regarding what would happen to the border between the Republic of Ireland and Northern Ireland, which is part of the U.K. Sterling last bought $ 1.3349, versus $ 1.3332 late Friday.

What is driving the market?

The dollar kicked off the week on a mixed note, but there are some catalysts on the horizon later in the week that could lend the U.S. currency some support. The Senate’s tax bill is expected to be brought to the floor on Thursday, meanwhile a confirmation hearing for Jerome Powell, President Donald Trump’s nominee to replace Fed Chairwoman Janet Yellen, is set for Tuesday, and gross domestic product and inflation data are due on Wednesday and Thursday, respectively.

Meanwhile, euro investors remain focused on hopes for a breakthrough in the political stalemate in Germany. Angela Merkel’s opposition, the Social Democrats, which initially ruled out the option of a renewed grand coalition with her Christian Democrats, have agreed to hold talks with other parties, which could mean a snap election may not be necessary.

However, SDP officials said that didn’t necessarily mean they were ready to rebuild a “grand coalition” with Merkel and her Christian Democrats.

Read: Here’s what Germany’s political turmoil means for global markets

Also read: Here’s why German political turmoil could hurt sterling more than euro

What are strategists saying?

“There doesn’t seem to be any particular reason for the reversal in the weak dollar trend; on the contrary, the reasons for the dollar to weaken and euro to strengthen remain in place, namely the questions surrounding U.S. tax reform versus the increasing likelihood of a resolution to the German political stalemate. I doubt whether the dollar will continue to recover today,” said Marshall Gittler, chief strategist at ACLS Global, in a note to clients.

What economic data are coming?

New home sales for October rose to the highest level in a decade at a seasonally adjusted annual rate of 685,000, compared with 667,000 in September.

Two Federal Reserve speakers are on the docket for Monday, in a week in which investors will also hear from Yellen, who will testify on the economic outlook before the Joint Economic Committee on Wednesday.

New York Fed President William Dudley is due to appear in a moderated discussion at an event sponsored by University of California, Berkeley at 7 p.m. Eastern on Monday. Minneapolis Fed President Neel Kashkari will participate in a moderated discussion at Winona State University at 6:30 p.m. Eastern.

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