By Sara Sjolin, MarketWatch
Euro slides as German election woes linger
The dollar climbed against most other currencies on Tuesday, rising to a one-month high against the euro as traders continued to digest the German election and looked ahead to a speech on monetary policy from Federal Reserve Chairwoman Janet Yellen.
The greenback drove up to its highest level against the euro since Aug. 25, with the shared currency buying $1.1824, down from $1.1850 late Monday in New York. Meanwhile, the jumped to a 10-week high against the euro, buying EUR1.1423, up from EUR1.1367 on Monday.
The eurozone currency also fell on Monday after German Chancellor Angela Merkel secured a fourth term in the election over the weekend , but nonetheless registered a sharp drop in her party's overall support. Merkel now has to form a coalition government, a process that analysts fear could be difficult and take months.
"The markets continue to worry that in her weakened political state Frau Merkel will not be able to maintain the steady policy consensus that has resulted in the best Eurozone recovery in years," said Boris Schlossberg, managing director of FX strategy at BK Asset Management, said in a note.
Euro investors were also fretting about an independence referendum in the Spanish region of Catalonia on Sunday, although the central government in Madrid has declared the vote illegal.
Across the pond, attention will turn to Fed boss Yellen, who will speak in Cleveland at 12:45 p.m. Eastern Time about inflation, uncertainty and monetary policy at the National Association for Business Economics's annual meeting.
"As many analysts have already pointed out, the German election has taken the sails out of the euro rally and today Ms. Yellen could turn that sentiment even more negative by affirming her support for further U.S. monetary tightening," Schlossberg said.
"Yellen is likely to maintain a hawkish tone in her remarks reaffirming the latest FOMC statement last week. Any dollar supportive rhetoric could push USDJPY back above the Yen112.00 figure while sending euro below the key $1.1800 support," he added.
The dollar bought Yen111.68 on Tuesday ahead of the speech, compared with Yen111.73 late Monday in New York. The Japanese currency had risen during Monday's session after North Korea claimed the U.S. had declared war on the country and said Pyongyang now has the right to shoot down U.S. strategic bombers .
The ICE Dollar Index traded 0.2% higher at 92.818, around its highest level since late August.
The pound was flat around $1.3468.