The dollar fell on Monday after rising 10 straight days as investors consolidated gains fuelled by the election of a new Republican president who is expected to adopt fiscal policies leading to interest rate increases. The greenback's weakness benefited the euro, which rose from an 11-month low hit last Friday, with political developments seen easing uncertainty surrounding next year's German and French elections.
Shaun Osborne, chief currency strategist at Scotiabank in Toronto, said the dollar's slide on Monday was just a correction or, at the very least, a consolidation. "We remain constructive on the outlook for the US dollar in the medium-term at least," Osborne said. "Rising US rates, stronger growth and presumably soon, additional clarity on the economic and fiscal policy outlook contrasts with slower growth and political risks elsewhere, particularly in Europe."
Osborne said any corrections should be limited in the near term, with investors likely to snap up cheaper dollars. In midmorning trading, the dollar index was down 0.4 percent at 100.84. Over the last 10 days, it has posted a nearly 5 percent gain, with investors betting US President-elect Donald Trump's increased fiscal spending would stoke inflation and propel interest rates higher.
Market participants expect the US Federal Reserve to raise rates at its December 13-14 policy meeting. Meanwhile, analysts said German Chancellor Angela Merkel's announcement on Sunday that she would seek a fourth term, while not a surprise, is viewed as positive for the single euro zone currency.
Merkel is seen as a defender of liberal democracy in the West as investors are worried that a wave of populism and anti-globalisation sentiment is spreading across Europe and threatening the break-up of the euro zone. The euro climbed 0.4 to $1.0631 after touching its weakest levels since December 2015 on Friday. Against the yen, the dollar hit a six-month high of 111.18 yen, but was last down 0.1 percent at 110.79.