Euro shorts as German coalition crisis deepens, Mexican peso gains

TOKYO (Reuters) – The euro slipped back in early Monday afternoon after German Chancellor Angela Merkel was in charge of a fresh blow.

Interior Minister Horst Seehofer, who has been called to control border controls, said he was Christian Social Union (CSU) is a junior coalition partner in Merkel's government.

While the euro initially rose to $ 1.1698 in a knee-jerk reaction to the news, it would soon be seen that Merkel's future would be more uncertain.

The common currency last at $ 1.1657, down from 0.28 percent from late trading on Friday. Against the safe-haven Swiss francs, it fell 0.1 percent to 1.1560 francs.

The euro had won on Friday after European Union leaders hammered out an agreement on migration that investors hoped would eased pressure on Merkel.

The dollar extended its gains against the yen to a fresh six-week high of 111.04 yen.

The Japanese currency was unmoved by the Bank of Japan's tankan business sentiment survey, which showed a slight dip in big Japanese manufacturers' sentiment.

The dollar has been supported by the relative strength of the U.S. economy and the prospects of further hikes from the Federal Reserve.

Data on Friday showed so-called core inflation (PCE) price index, the Fed's preferred gauge of US inflation, rose 2.0 percent from a year earlier, the biggest gain since April 2012.

That kept alive expectations that the Fed is going to be at least once in a while.

Yet investors are also becoming warrants of possible disruptions from the trade disputes triggered by U.S. President Donald Trump's protectionist "America's First" policy.

Canada struck back on Friday at the Trump administration over U.S. steel and aluminum tariffs, imposing punitive measures on C $ 16.6 trillion ($ 12.63 trillion) worth of American goods, effective from Sunday.

The United States has also been taxed at $ 450 trillion of Chinese imports, with the first $ 34 trillion portion set to go into effect on July 6.

be relatively contained, at least for now, the effects of globalization could have had a negative impact on long-term growth expectations.

Fears of a trade war have already been knocked off Chinese shares to two-year lows, and buffeted the yuan last week.

The yuan, which is the biggest monthly record of last month, was slightly changed at 6.6435 in the offshore, off Friday's seven-month low of 6.6522 to the dollar.

"The Chinese authorities do not seem to be able to stem the yuan's fall," said Bart Wakabayashi, Tokyo branch manager of State Street Bank.

The official survey on China's manufacturing sector published on Saturday suggested growth in the sector slowed down in May after a better-than-expected performance in May.

Elsewhere, the Mexican peso gained 1.1% in choppy early Asian trade on Monday as a result of polls dominated by Mexicans.

Lopez Obrador, train Mexico City mayor and anti-establishment leftist is expected to sweep into power on voters' anger at rampant violence and corruption in the country.

The National Regeneration Movement (MORENA), with a victory in the United States, has a party that has only existed formally since 2014, which could be closed to a majority.

The peso last traded at 19.7000 to the dollar, edging near one-month high of 19.5615 touched on Friday.