Euro steadies after big drop as markets look beyond
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[November 21, 2017]
By Saikat Chatterjee
LONDON (Reuters) - The euro steadied on
Tuesday after registering its biggest daily fall in the previous session
as investors looked beyond Germany's political impasse to focus on the
euro zone's still robust economy.
With major currencies closeted in tight trading ranges in a lackluster
session in a holiday-shortened week, traders were wary of taking big
"The worst case scenario is that the German political process will take
a little more time to resolve but markets are not expecting anything
extraordinary to come out of this and the bigger picture is that the
economy is performing well," said Commerzbank currency strategist Esther
Reichelt in Frankfurt.
Germany's Chancellor Angela Merkel raised the prospect on Monday of a
new election after talks on forming a three-way coalition collapsed.
But two of her veteran allies urged parties on Tuesday to make
compromises and form a stable government.
The single currency <EUR=EBS> was flat at $1.1725 after falling half a
percent on Monday, its biggest daily fall since Oct. 26.
With growth from the bloc exceeding the United States in the third
quarter, led by largest economy Germany, the single currency has
recovered from earlier lows and investors were becoming more comfortable
in holding European assets.
TD strategists said a snap election would not necessarily be a negative
for the euro in the medium term and they continued to believe that the
growth dynamics should outweigh any flare-up in political uncertainty.
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Bundles of 50 Euro banknotes move along a conveyer belt at the Money
Service Austria company's headquarters in Vienna, Austria, November
16, 2017. REUTERS/Leonhard Foeger
Derivatives markets pointed to further upside for the euro with risk reversals
still at elevated levels while implied volatility gauges held near 2017 lows.
Elsewhere, the dollar gave back some of its gains in Asian trading but stuck
close to a one-week high against a basket of currencies .
The dollar index, which tracks the greenback against a basket of six major
rivals, was broadly flat at 94.08 <.DXY>, but was still within sight of its
overnight peak of 94.104, its highest since Nov. 14.
The U.S. data calendar is relatively sparse ahead of the Thanksgiving holiday,
with Federal Reserve Chair Janet Yellen scheduled to give a speech later on
Tuesday. Minutes from the Fed's November meeting will be released on Wednesday.
(Reporting by Saikat Chatterjee; Editing by Andrew Heavens)
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