The euro slipped to a one-month low on today after its worst day so far this year, as investors worried that months of coalition talks in Germany could weigh on the economy and would make closer euro zone integration difficult.
German Chancellor Angela Merkel, who won a fourth term in elections on Sunday but now faces a tough juggling act to form a government with other parties, on Monday struck a note of caution with respect to French calls for fiscal union.
French President Emmanuel Macron, who wants a fundamental overhaul of the European Union’s single currency zone and whose ideas include creating a euro zone budget and a euro zone finance minister, will lay out his plans in a speech in Paris on Tuesday.
But the results of Germany’s election have forced Merkel to consider a new coalition including the liberal Free Democrats (FDP), a party critical of Macron’s ideas on Europe, and investors are therefore worried the reforms that they would welcome will not end up going through.
The euro faced additional pressure on Monday after European Central Bank President Mario Draghi singled out currency volatility as a source of uncertainty that required monitoring and argued that “ample” ECB accommodation was still needed, because a premature and hasty move could unravel its work.
The dollar was flat, having earlier dipped as worries over North Korea flared up again amid an escalating war of words between it and the United States.
The yen made sharp gains versus the greenback on Monday after the North Korean foreign minister said President Donald Trump had declared war on the country and that Pyongyang reserved the right to take countermeasures, including shooting down U.S. bombers even if not in its air space.
Immediate focus was on what views might be expressed by Fed Chair Janet Yellen, who is due to speak in Cleveland at 1645 GMT on “inflation, uncertainty, and monetary policy.”
KEY DATA: Yellen Speaks on Inflation, Uncertainty, and Monetary Policy