By Hannah Lang and Stefano Rebaudo
(Reuters) -The euro dropped to its lowest level in 6-1/2 months against the greenback on Monday (NASDAQ:MNDY) as investors worried about possible U.S. tariffs that would hurt the euro area’s economy.
Meanwhile, the U.S. dollar index — a measure of its value relative to a basket of foreign currencies — slightly overshot the highs seen right after the U.S. presidential election with markets still waiting for clarity about future U.S. policy.
“It does feel like the markets are pricing in a red wave more and more. I think the dollar is the beneficiary of that,” said Bipan Rai, managing director at BMO Global Asset Management.
The sensitivity of the euro to the threat of higher U.S. import tariffs was evident late on Friday when media reported that President-elect Donald Trump was lining up Robert Lighthizer, seen as a hawk on trade, to run his trade policy, analysts said.
Sources familiar with the matter said Trump has not asked Lighthizer to return to the agency overseeing trade policy.
The single currency was down 0.7% at $1.0643. It dropped 0.78% on Friday.
Politics remained under the spotlight after German Chancellor Olaf Scholz cleared the way for snap elections.
The dollar index was 0.56% firmer at 105.59, after hitting 105.50, its highest since July. Last week, it jumped more than 1.5% to 105.44, after U.S. election results showed Trump’s victory.
MIXED VIEWS
Trump “will be less encumbered by the political considerations of having to run for office again”, said Libby Cantrill, head of U.S. public policy at PIMCO.
“However, what look to be narrow congressional margins – potentially historically narrow in the House – could be a check on Trump’s agenda, fiscal and otherwise,” she added.
Measures from the U.S. President-elect — including tariffs and tax cuts — should put upward pressure on inflation and bond yields while limiting the Fed’s scope to ease policy and supporting the greenback.
“One of the key questions after the election is, what’s going to be at the top of the legislative agenda for the Trump administration? And it feels more and more like it’s going to be tariffs, which, of course, he can pretty much push through without needing Congress on his side to help him do that,” said Rai.
The dollar gained 0.79% on the yen to 153.84 , having been dragged off last week’s top of 154.70 by the risk of Japanese intervention. On Nov. 6, it hit 154.68, its highest level since July.
A summary of opinions from the Bank of Japan’s October policy meeting showed members were unsure on when to raise rates, also due to political uncertainty.
The rate outlook will be crucial for the greenback while all major central banks ease their monetary policy.
Citi expects U.S. rates to stay close to current levels in the near term as the market is caught between expectations of significant policy changes in 2025 and the easing cycle driven by near-term data.
The U.S. bond market is closed for a public holiday on Monday, though stocks and futures are open.
Bitcoin soared to a record high above $83,000 on Monday on expectations that crypto-currencies will boom in a favourable regulatory environment following the election of Trump as U.S. president and pro-crypto candidates to Congress.
This post is originally published on INVESTING.
