The dollar gained against other major currencies on Monday, boosted by comments from New York Federal Reserve President William Dudley. Markets were still weighing the results of weekend elections in New Zealand and Germany.
Dudley said the Federal Reserve was still on track to gradually raise rates, as low inflation is less of an issue and the U.S. economy is firm.
The New York Fed President said the central bank is likely to “continue to remove monetary policy accommodation gradually,” and that he “expects inflation will rise and stabilize” around the 2% target in the medium term.
Investors now await comments from Fed Chair Janet Yellen later in the week. The market expects the Fed to raise rates in December. Forex traders will also be focused on a speech from European Central Bank President Mario Draghi and comments from other central bank heads in Japan, United Kingdom and Canada.
Robust economic data out of the European Union has heightened expectations that the ECB will tighten monetary policy in the near-term. Investors will analyze comments from Draghi to predict future moves by the ECB.
The euro fell 0.7% against the dollar, trading at 1.1874. The currency was weighed down by Germany’s federal election showing support for a far-right party.
Angela Merkel secured her fourth term in office, but Conservatives have lost support to AfD (Alternative for Germany), an anti-immigration party.
The AfD party finished third and entered the parliament with 13.5% of the vote. That puts the party well above the 5% vote needed for seats in the parliament.
The pound, meanwhile, held steady against the greenback, trading at 1.3515. The pound rebounded after losses on Friday following comments from Prime Minister Theresa May on how Brexit will play out. The PM proposed that the UK go through a two-year transition period, during which the country would still have access to the single market on its current terms.
The dollar gained against the yen, up 0.25% to 112.27. Japan’s Prime Minister Shinzo Abe has called for a snap general election on October 22 that will determine whether the country will continue its economic stimulus.
The greenback eased against the yen last week, cutting five days of gains. The yen was bolstered by demand for safe haven currencies amid heightened tensions on the Korean peninsula. North Korea said on Friday that it may test a hydrogen bomb over the Pacific Ocean. The threat came after U.S. President Donald Trump launched his own threat to “totally destroy” North Korea if America was forced to defend itself.
Markets remain concerned about the 3.4 magnitude earthquake in North Korea. Monitoring agencies are still unsure of whether it was a natural event, or if it was sparked by a nuclear detonation.
The Aussie held steady against the greenback, trading at 0.7951.
The kiwi, on the other hand, fell 0.9% to 0.7275 following New Zealand’s elections, in which no single party won a majority.
Although the National Party won the most votes, none of the major parties secured enough seats to gain a majority in parliament. Coalition talks are expected to last several days or weeks.