The euro declined on Monday following news about German Chancellor Angela Merkel’s decision to step down as chairwoman of the Christian Democratic Union (CDU) party.
Against the dollar, the euro fell 0.2 percent to 1.1378. The currency dropped 0.4 percent to hit a day’s low of 1.136 earlier in the session after senior party sources announced that Merkel will not run for re-election as the CDU chair in December.
The euro has come under pressure because she is seen as a pro-European force despite being a tough negotiator when it comes to bail-outs, said currency strategist Ulrich Leuchtmann.
Merkel has been leading the CDU since 2000, becoming one of its longest-serving chairpersons. She became the first female Chancellor of Germany in 2005 and intends to remain in the post until her term ends in 2021.
Since that year, Merkel has loomed large on the European stage, helping guide the European Union (EU) through the euro zone crisis and opening Germany’s doors to migrants fleeing the war in the Middle East in 2015, a move that still divides the EU and Germany.
However, reports of Merkel’s plans to step down could prompt a race within the CDU to find her successor.
Merkel’s decision came after the CDU experienced major losses in regional elections on Sunday which put the stability of the governing coalition at risk. The CDU was confirmed as the state of Hesse’s biggest party, although it suffered its worst result since 1966 as it fell 10 points compared to the previous vote in 2013.
If the CDU continues to suffer and Merkel loses the confidence of its members, at some stage Merkel could get voted out of the parliament.
Germany’s next election is due to be held in 2021.
Merkel’s weakness at home may also hold her back from leading the EU at a time when the bloc is dealing with Brexit and a budget crisis in Italy.
Dollar Hits 10-week High on Global Growth Worries
The US dollar, meanwhile, marked a 10-week high on Monday as worries over global growth influenced markets.
The US dollar index, a measure of the greenback’s strength against a basket of six major currencies, rose 0.2 percent to $96.41 after climbing 0.7 percent last week when it reached a 10-month high.
The dollar found support as world stocks have sold off this month, weighed down by concerns over corporate earnings and geopolitical uncertainty.
Foreign exchange Co-head Zach Pandl stated that that likely reflects a number of factors, including long dollar positioning and, by the end of this week, some modest re-pricing of Federal Reserve expectations.
Dueling tariffs imposed by the US and China have also drove the dollar higher. The market has assumed that while the US economy will be hit by reduced trade, the damage will be less than its trading allies.
Keeping the dollar bid this week should a continuation of strong US data, according to FX strategy head Chris Turner, adding that at the same time, they will be watching developments in China.
Data released on Friday showed the US economy slowed less than expected in the third quarter, as consumer spending grew to its strongest in almost four years and as an increase in inventory investment offset tariff-related losses in soybean exports.
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