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Dollar Lower on Euro Strength as Merkel Reaches Immigration Comprise

7/4/2018, 2:38:48 PMMarket Analysis
Dollar Lower on Euro Strength as Merkel Reaches Immigration Comprise

The U.S. dollar fell against its rivals, pressured by a rise in the euro after German Chancellor Angela Merkel reached a compromise on immigration, averting a split of her fragile coalition government.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell by 0.27% to 94.34.

Merkel, overnight on Monday, resolved a row with her coalition partners over migration, ending a feud that had threatened the future of her government. Merkel and Interior Minister Horst Seehofer agreed to tighten border controls and set up closed holding centers to allow faster processing of asylum seekers and remove those who are rejected.

That swung sentiment in favor of the euro against the greenback as EUR/USD rose 0.16% $1.1658.

Better-than-expected U.S. factory orders failed to spark a rebound in the greenback as investors appear to take profit on recent gains ahead of the U.S. Independence Day on Wednesday, which usually sees lighter trading volumes.

U.S. factory orders orders rose 0.4%, supported by a strong demand for machinery, the Commerce Department said on Tuesday. Data for April was revised higher, showing orders fell 0.4% rather than the previously reported steeper decline of 0.8%.

The safe-haven yen and Swiss franc were in demand, adding pressure on the greenback, ahead of U.S. and China trade tariffs that will take effect on Friday.

USD/JPY fell 0.31% to Y110.56, while USD/CHF 0.17% to 0.9919.

The Trump administration's tariff on a range of Chinese goods worth about $34 billion is expected to come into effect on Friday. China's 25% tariff will also take effect Friday on $34 billion of U.S. goods.

Also adding to the dollar's woes was a rise in GBP/USD to $1.3184, up 0.29%, despite investor concerns over an upcoming Brexit cabinet meeting due later in the week.