Daily Afternoon Report 25.09.2017

The dollar extended gains against other major currencies on Monday, following upbeat remarks by New York Federal Reserve President William Dudley, while markets continued to digest the weekend’s elections in Germany and New Zealand.

The greenback was boosted after Dudley said the Fed is on track to gradually raise interest rates given factors depressing inflation are “fading” and the U.S. economy’s fundamentals are sound.

“I expect inflation will rise and stabilize around the (Fed’s) 2% objective over the medium term,” he said before adding that “in response, the Federal Reserve will likely continue to remove monetary policy accommodation gradually.”

EURUSD declined 0.70% to 1.1874 after Germany’s federal election on Sunday showed growing support for a far-right party.

Chancellor Angela Merkel won a fourth term in office on Sunday but will have to build a coalition to form a government as Conservatives lost support in the face of a surge by the anti-immigration Alternative for Germany (AfD).

Earlier Monday, data showed that German business confidence edged lower in September. However, the reading remained close to the highest level on record, suggesting momentum in the euro zone’s biggest economy remains strong.

Elsewhere, GBPUSD held steady at 1.3515, recovering from moderate losses posted on Friday after UK Prime Minister Theresa May gave few new indications on how Brexit will proceed.

May proposed a transition period of around two years after the UK leaves the European Union, during which time access to the single market will continue on current terms.

Following May’s speech, ratings agency Moody’s downgraded Britain’s credit rating to Aa2, saying government plans to reduce debt had been knocked off course and that Brexit would weigh on the economy.

Meanwhile, USDJPY rose 0.25% to 112.27 and USDCHF gained 0.47% to 0.9739.

Also Monday, Japan’s Prime Minister Shinzo Abe called a snap general election that will decide whether the country sustains its massive economic stimulus. The vote is set for October 22.

The Australian dollar was little changed, with AUDUSD at 0.7951, while NZDUSD retreated 0.90% to 0.7275 after no single party won a majority New Zealand’s elections over the weekend.

The ruling National Party won the largest number votes, but neither of the major parties won enough seats to gain a majority in parliament, forcing a round of coalition talks that could last days or weeks.

USDCAD edged down 0.15% to trade at 1.2319.