September 24, 2017 / 9:15 PM / in 23 days

Uncertainty, geopolitical tensions boost yen, sink euro vs dollar

Bank notes of different currencies, including Euro, U.S. Dollar, Turkish Lira or Brazilian Reais, are photographed in Frankfurt, Germany, in this illustration picture taken May 7, 2017. Picture taken May 7, 2017. REUTERS/Kai Pfaffenbach/Illustration

NEW YORK (Reuters) - The U.S. dollar rose against a basket of six currencies on Monday, with the euro hit by election results in Germany and investor jitters about a warning against hasty policy shifts by the European Central Bank president.

The euro fell after a weekend victory for German Chancellor Angela Merkel that was accompanied by a surge in support for the far right. Support for Merkel’s conservatives unexpectedly slumped to its lowest since 1949 and the Social Democrats, partners in the outgoing coalition, said they would go into opposition.

Euro selling picked up after North Korea’s foreign minister called a Twitter message by U.S. President Donald Trump over the weekend a declaration of war. Trump’s tweet said the minister and North Korean leader Kim Jong Un “won’t be around much longer” if they acted on their threats.

The single currency fell more than 1.1 percent against the Japanese yen and around 1 percent versus the dollar. It was the biggest one-day percentage drop against the yen since May and the largest fall against the dollar since December.

“There was a lot of euro/yen selling off the North Korea move, so that really pressured the euro (overall),” said Kathy Lien, managing director at BK Asset Management.

Lien also pointed to a speech by ECB head Mario Draghi who argued that “ample” accommodation from the central bank was still needed, because a premature and hasty move could unravel its work, as weighing on the euro.

“The market was looking for more positive comments from Mario Draghi and we didn’t get that,” she said. “That combined with the election uncertainty just gives investors another excuse to liquidate.”

The euro EUR= was last down 0.9 percent at $1.1846. It has been one of the best performing currencies against the greenback this year, up more than 13 percent before Monday.

The yen JPY= reversed earlier losses against the dollar after the statement from North Korea as investors piled into the safe-haven currency. The Swiss franc CHF=, also favored by investors in times of uncertainty, rose against the dollar after the statement.

The dollar was last down 0.35 percent against the yen at 111.61 yen and 0.25 percent lower against the franc at 0.9666 franc.

The dollar index .DXY was last up 0.5 percent. The euro is the dollar index’s largest component, accounting for more than half of its weighting against six major currencies.

Reporting by Dion Rabouin; Editing by Bernadette Baum and David Gregorio

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