The euro was 0.3 percent from a seven-month high versus the dollar after Angela Merkel won an overwhelming endorsement from German voters, putting her on track for the largest election tally since Helmut Kohl's post-reunification victory of 1990. The greenback retreated versus the yen as markets assess when the Federal Reserve will trim the pace of its bond purchases. Federal Open Market Committee voting member William C. Dudley is scheduled to speak today following comments from Bank of St. Louis President James Bullard indicating an October move is possible. Australia’s dollar surged after a Chinese manufacturing gauge was stronger than analysts had estimated. Lacking Majority Merkel’s Christian Democratic bloc took 41.5 percent of the vote in yesterday’s election, to 25.7 percent for the Social Democrats of Peer Steinbrueck, according to results from all 299 districts. That leaves her short of a majority and party leaders are due to meet today to discuss coalition talks. Merkel’s choice is limited to a re-run of her first-term “grand coalition” with her traditional SPD rivals or the first-ever national alliance with the Greens. Neither party rushed to endorse a coalition. A repeat of the grand coalition “is much as markets had expected going into the election, so the euro has rallied only modestly,” Darren Gibbs, the chief economist at Deutsche Bank AG in Auckland, wrote in a note to clients today. European Central Bank President Mario Draghi will speak in the European Parliament today. The euro climbed 4 percent this quarter versus the dollar, poised for its biggest advance since the first three months of 2011. The greenback is little changed against the yen. Europe PMI A composite index based on a survey of purchasing managers in euro-area services and manufacturing industries rose to 51.8 in September from 51.5 in August, London-based Markit Economics is forecast to say today according to a Bloomberg News survey. A reading above 50 indicates expansion. The preliminary reading for a Chinese Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics surged to 51.2 this month from 50.1 in August. The Bloomberg survey median was for 50.9. The Australian dollar inched up 0.4 percent to 94.30 U.S. cents. China is Australia’s biggest trading partner. The dollar declined for a second day versus the yen before Fed Bank of New York President Dudley and Bank of Atlanta President Dennis Lockhart are scheduled to speak today. The Fed last week unexpectedly refrained from reducing its $85 billion in monthly asset purchases, saying it needs to see more signs of sustained labor market gains. “Dollar-yen, for quite some time now, has been mainly driven by the Federal Reserve’s taper expectations,” said Sue Trinh, a Hong Kong-based senior currency strategist at Royal Bank of Canada. “There’s a lot of uncertainty as to where we stand with tapering.” RBC predicts the dollar will fall to 92 yen by year-end. Bullard, a voter on policy this year, said Sept. 20 that a “small tapering” was possible in October. The central bank will be able to weigh the September jobs report and revisions of prior months as well as updated housing reports at its Oct. 29-30 meeting, he said.
