The US dollar touched its highest against a basket of major currencies in nearly a week on Monday, as the euro weakened amid political risks linked to German Chancellor Angela Merkel's failure to form a three-way coalition government. Merkel, whose conservatives were weakened after they won an election in September with a reduced number of seats, said she would inform the German president that she could not form a coalition, after the pro-business Free Democrats withdrew from negotiations.
The development thrust Germany, Europe's biggest economy, into a political crisis that raised worries among investors of a new election if Merkel cannot form a minority government. The news revived "a key risk factor" for the continental single currency, said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
"With the euro losing favor, given the messy can of worms that has been tipped over in Europe, that's helping the US dollar weather its own political uncertainties," he said. The dollar index rose to 94.039, its highest since Nov. 14. The greenback also climbed against the Japanese yen, rising to a session high of 112.40 yen in early North American trading as US stock markets opened higher and traders took risk-on positions, finding little favor in the safe-haven currency. The euro fell to $1.1720 in overnight trading following news of the failure to form a coalition German government. It fell dramatically against the yen to 131.16 yen , its weakest since Sept. 15.