The euro weakened sharply against the dollar to break back below the key 1.1300 level. After a modest rally to a European session high of 1.1329 in the wake of the Greek election results, the euro fell back down to 1.1233.
There seemed to be little lasting impact on the single currency after the Syriza win in Sunday’s elections when Alexis Tsipras regained his post as Prime Minister of Greece, ending political uncertainty in the country. Once the new coalition government is formed they can focus on implementing the reforms required by Greece’s creditors as a condition for receiving the bailout package worth 86 billion euros.
The only economic data out of Europe was German PPI which was weaker in August at -1.7 y/y from a prior -1.3% and missing the -1.5% forecast.
Meanwhile, any strong rallies in the euro will likely be capped as the European Central Bank’s bias towards a more accommodative monetary policy will weigh on the currency. Recent comments by Mario Draghi and other ECB policy makers have indicated the Bank’s willingness to reinforce QE. Draghi’s quarterly testimony this Wednesday will be important to watch for any hints on the ECB’s stance on policy.
Sterling traded above the key 1.5500 level against the dollar in the absence of any UK data.
The dollar rose against the yen to move well above Friday’s post-Fed decision low of 119.04 yen. A three-day public holiday in Japan has kept trading in the yen mostly subdued. The dollar was supported by comments today from James Bullard, president of the St. Louis Federal Reserve, who said in an interview with CNBC that there was still a chance for a Fed rate hike in October. At its latest meeting last week, the Fed decided to keep rates unchanged, which sent the dollar lower across the board at the end of the week.
After reaching a high of 120.56 yen today, the dollar eased back down to 120.27 yen. Losses were held after disappointing US existing home sales data which showed August numbers were down 4.8% to an annual rate of 5.31 million units compared to a forecast of a 5.51 million-unit pace. July sales were revised down to 5.58 million from 5.59 million.