The euro is edging higher to trade at its best levels since the middle of last month. It is drawing closer to the $1.1880 area, which if overcome, could point to a return to the year’s high seen in early September near $1.2100.
There is a combination of factors lifting the euro. The recent data, including yesterday’s flash PMI, suggests that the regional economy is re-accelerating here in Q4. Today’s German IFO survey provides corroboration. The assessment of the overall business climate rose to a new record high of 117.5 from an upwardly revised 116.8. The breakdown showed that even though the assessment of the current economy eased a touch, the improved expectations more than offset it.
One of the reasons that the current assessments may have softened is the political uncertainty since the elections two months ago that saw both of the main two parties draw the least voter support in modern times. While the attempt to forge a complicated coalition between the center-right CDU/CSU, the liberal (meaning pro-market) Free Democrats, and the Greens faltered, the Social Democrats are rising to the occasion and are now open to talks.
The SPD has been the junior member of two of three governments headed by Merkel. They appear to have lost their identity, and after the disastrous election results were going back into opposition. There was an additional wrinkle. The AfD emerged as the third largest party. If the SPD joins the government, the AfD would be the main opposition party, for which there are special parliamentary privileges. Being in opposition allows those privileges to bestowed on the SPD.
The other wrinkle is the SPD leader Schulz is under pressure within his party to step down and make room for the next generation. The SPD holds a special party conference on December 7-9 and leadership contest.
The backing up of US 10-year Treasury yields appear to be lending support to the greenback against the yen. The dollar had slipped to almost JPY111.00 yesterday. The US 10-year yield is up nearly three basis points today (to almost 2.35%), and this has coincided with dollar upticks toward the lower end of the previous band of support (JPY111.65-JPY111.80).
