LONDON, Sept 19: The euro slumped against the dollar on Monday after a deadlocked general election result in Germany, the eurozone’s largest economy, and on the eve of a US interest rate decision.
The euro dropped to $1.2146 in European trading from 1.2235 late on Friday in New York. Earlier on Monday it had hit 1.2101 dollars — the lowest level since July 29.
The dollar firmed to 111.48 yen from 111.34 on Friday.
Germany was plunged into uncertainty overnight when the leaders of both main political parties claimed they could become chancellor after neither won an overall majority in the poll.
The most inconclusive election result in post-war Germany yesterday (Sunday) has prompted some heavy euro selling, Bank of Tokyo-Mitsubishi analyst Derek Halpenny said.
Though Angela Merkel’s opposition Christian Democrats (CDU) appeared to have scratched out a narrow victory over Chancellor Gerhard Schroeder’s Social Democrats (SPD) in Sunday’s election, the CDU crucially failed to secure a governing majority.
Provisional official results gave the CDU 35.2 per cent of the vote, one of their worst results since World War II, and only narrowly ahead of the SPD’s 34.3 per cent. That amounts to a three-seat advantage for the Christian Democrats with 225 seats to 222 for the SPD.
Market participants were also looking to the US Federal Reserve, which was due on Tuesday to announce an interest rate call.
The negative impact on the euro from the outcome of the (German) election is being reinforced against the dollar by the prospect of monetary tightening by the Federal Reserve, Halpenny said.
The dollar has been buoyed this year, following a three-year downturn, against the euro by a growing focus on interest rate developments between the United States and the 12-nation European single currency zone.
The Fed has raised interest rates 10 times since June 2004 to 3.50 per cent, and until Hurricane Katrina struck in late August, was unanimously seen raising its rate target this month, in November and possibly in December.
The euro was changing hands at $1.2146 against 1.2235 late on Friday in New York, 135.35 yen (136.21), 0.6736 pounds (0.6769) and 1.5505 Swiss francs (1.5533).
The dollar stood at 111.48 yen (111.34) and 1.2764 Swiss francs (1.2691).
The pound was being traded at $1.8031 (1.8079), 200.96 yen (201.17) and 2.3015 Swiss francs (2.2950).
On the London Bullion Market, the price of an ounce of gold stood at $461.95 from 457.20 late on Friday. —AFP
