The euro pushed off 11-month lows on Monday as political uncertainties within Europe seemed to have improved, particularly in Germany and France. The political advancements are seen by some as making next year's French and German elections less unclear, lending some support to the currency.
Against a broadly weaker dollar, the euro climbed 0.42% to trade at 1.0634 as of 12:31 GMT. It previously touched its weakest levels since December 2015 on Friday.
Although Chancellor Angela Merkel's declaration that she would run for a fourth term in office did not come as a shock to many, it was remarked by strategists as more definitely optimistic for the euro, as said by Commerzbank.
“Merkel is seen as a strong supporter of the euro...and she’s seen as a symbol of stability.” said the bank’s currency strategist Esther Reichelt.
Former president Nicholas Sarkozy was forced out from the French presidential race over the weekend. With this, former Prime Ministers Francois Fillon and Alain Juppe are left to become the Republican Party's candidate for the election to be held in May. The victor is anticipated to come face to face with the far-right, anti-European Union National Front frontrunner Marine Le Pen.
A number of analysts said the loss of the Sarkozy had narrowed the odds of her winning, reducing investors' fears about a break-up of the Eurozone. However, others have claimed that the socially conservative and pro-business Fillon— who won the first round ballot with 44% of the vote— raised the viewed threat that Le Pen could take power, as he lacked the broad charm of the more centrist Juppe.
“There had been some concern that if Sarkozy was up against Le Pen, that would not be a particularly good circumstance,” Rabobank currency strategist Jane Foley stated. “The market has always been fairly confident that Le Pen would fail to win the second round, but after the Trump victory, markets began to get a little doubtful about what opinion polls were suggesting.”
Additionally, strategists claimed that the euro had also been buoyed by a slight dampening of the dollar, which fell 0.2% against its rival currencies after hitting its highest levels in almost 14 years on Friday.
Since the victory of Donald Trump as the new US president earlier this November, the greenback has soared over 3% that led to reach peak-levels last seen in 2003. Investors are forecasting that a Trump administration would implement expansionary fiscal policies that would lead to higher interest growths.
Most market players are predicting the Federal Reserve to raise rates next month in their policy meeting.
And as the dollar is falling today, with the US Dollar Index gaging a 0.38% decline to 100.36, the euro is moving higher. On the chart below, EUR/USD saw its steepest drop on November 9, the day of the US presidential elections , from hitting an intraday high of 1.12996, and then consequently closing at 1.09066.
As the markets digested the election results and found that Trump’s administration and policies may give an optimistic path for stocks and the dollar, the euro further degraded to an 11-month trough at 1.05867  on Friday.
However, the trend is still strongly bearish at this point. Post-election rally is still awaiting the dollar for this week, and today’s political factors in Germany and France are viewed as much weaker than Trump’s effects on the US economy and the markets.
This week markets will further focus on Trump's picks for high ranking positions. Investors have also been quick to extrapolate Trump's every action into investable ideas. The US dollar has appreciated quickly while investors have sold EM bonds and shifted into DM equities.
The macro setting hints deeper depreciation for the euro. Even with the easing of qualms in the German and French elections, the failure of polls in Brexit and US presidential elections injects a non-negligible amount of uncertainty into these events—thus saying that the aforementioned predictions of strategists may follow the same fate as believing Brexit would not win, and Hillary Clinton taking the seat as the 45th US president, all of which the contrary happened.
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