The euro fell against the dollar on Monday as riots in France fed concerns about the country's fiscal outlook. The US currency gained as AI-related stocks rebounded. Traders price 91% odds of a Fed hike in December.
The euro fell 0.24% to $1.1212 against the dollar on Monday as riots in France added to concerns about the country's worsening fiscal outlook. The US currency, meanwhile, drew support from a rebound in AI stocks.
French unrest weighs on the euro
France's central government asked some local authorities to impose curfews as it faced pressure over security failings after a weekend of riots and looting stemming from nationwide anti-government protests. The unrest is also seen as improving National Rally leader Marine Le Pen's chances of winning next year's presidential election, which could raise questions over France remaining in the European Union.
Marc Chandler, chief market strategist at Bannockburn Global Forex, said Le Pen is running on a fiscal austerity program but is anti-EU. The spread between French OATs and safe-haven German Bunds widened to 147 basis points, levels last seen during the 2011 to 2012 European debt crisis, from around 110 bps in late September.
Dollar gains on AI stock rebound
The dollar index rose 0.17% to 101.97 as AI-related stocks rebounded from last week's sharp selloff. Last week, concerns that waning enthusiasm for AI stocks would stem capital inflows and reduce demand for the US currency had dented the greenback.
ING FX strategist Francesco Pesole said markets appear to have a clear reaction function in mind. According to ING: "stock market turmoil is enough to drastically reduce Federal Reserve tightening plans", Pesole said.
Recent comments from Fed officials suggest policymakers are in no rush to hike rates again. On Friday, Chairman Kevin Warsh expressed optimism about US economic strength but gave no indication of whether or when more hikes would be needed. Fed funds futures traders see the Fed holding rates steady at its October 27 to October 28 meeting and are pricing in 91% odds of a hike in December.
Other majors react to data
The Australian dollar rose 0.49% versus the greenback after China's economic growth rebounded from three-year lows, expanding at a 4.5% annual pace in the third quarter. The yen, by contrast, weakened 0.35% to 158.49 per dollar. Bank of Japan Governor Kazuo Ueda said underlying inflation is close to the central bank's 2% target, signaling scope for further rate increases.
Source: Reuters via Investing.com
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