The U.S. dollar was all over the place on Thursday, putting in a mixed performance against other currencies but losing ground to the euro, which strengthened modestly as traders watched a key European Union summit in Brussels that could shape the future of the eurozone.
At the two-day summit, which is focused on how to deal with the challenges posed by the refugee crisis, German chancellor Angela Merkel has called yet again for an EU-wide deal on migration. Merkel is under pressure at home from the more conservative Bavarian sister party of her Christian Democrats — the Christian Social Union — over this issue. The CDU needs the CSU to hold her fragile coalition government, which is at risk of failing if she doesn’t come home with a solution to tackle immigration, together.
Merkel’s future and that of the EU have rarely before been this entangled, and euro EURUSD, +0.2250% traders are paying close attention even as the recent worries about an early election in Germany have receded.
“Although no compromise on the [immigration] deal has been reached, the immediate threat of early elections has receded, but this Friday’s EU summit could produce some market moving headlines as the migrant issue remains front and center of EU policy,” said Boris Schlossberg, managing director of FX Strategy at BK Asset Management, in a note.
But so far, the shared currency is at $1.1583, compared with $1.155 late Wednesday in New York. If the euro would change course significantly, it would have notable ramifications for the greenback, because the popular ICE U.S. Dollar Index DXY, -0.14% is heavily weighted toward the eurozone currency.
On Thursday, the dollar gauge was 0.1% lower at 95.183, stalling after a rally on Wednesday when the White House walked away from harsh measures to curb Chinese investment in the U.S.
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Brexit will also be on the agenda at the Brussels summit,, but with the U.K. still unclear about its desired post-divorce relations with the continent, little progress is expected at the meeting. All the while, the British pound GBPUSD, -0.1525% dropped to its lowest level since early November 2017, buying $1.3090, compared with $1.3115 on Wednesday.
“As for Brexit, the EU’s view is that there’s not much new to discuss, that Britain still hasn’t put forward a viable position for the two sides’ relationship after Brexit. There probably won’t be much disagreement within the EU side about the issue, but the conclusion is likely to be negative for Britain and the pound, in my view,” said Marshall Gittler, chief strategist at ACLS Global, in a note.
Elsewhere, traders watching the Mexico’s peso USDMXN, -1.8593% stabilize and reversed the selloff it experienced over the past two days versus the U.S. dollar. Mexicans are headed to the polls on Sunday to elect a new president in a vote that could be the beginning of a very different political era for the country. One dollar last bought 19.7965 pesos, down 1.9% from Wednesday.
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