The dollar rose against the euro on Monday, close to a 10-week high hit last week, as news emerged that German Chancellor Angela Merkel was no longer seeking re-election as head of her party, the Christian Democratic Party (CDU).
The dollar continued its recent rally against other major currencies, helped by Monday's data showing strong U.S. consumer spending.
Merkel said she did not seek re-election as head of the party, heralding the end of her 13-year reign in European politics.
"The foreign exchange market thinks she's the Iron Lady of Europe," said Karl Schamotta, chief market strategist at Cambridge Global Payments.
"This is certainly not good news for the political factors that support the euro," he said.
The weakening of Merkel's domestic power could limit her ability to lead the EU, especially as it copes with Britain's exit from Europe and the Italian budget crisis.
The euro fell 0.14% against the dollar.
Schamotta warned against overinterpreting the euro's decline today.
"I don't think it will have a lasting impact on the eurozone. She is still prime minister and is likely to be promoted to the European Council," he said.
The US dollar index rose 0.24%, to 96.594, slightly lower than the 10 week high hit last Friday. The US dollar rose 0.38% against the yen, recovering some of the lost territory last week.
Concerns about corporate performance and geopolitical uncertainty have led to growing volatility in capital markets, boosting the dollar.
"If you want the dollar to fall, either it loses its hedging appeal or the U.S. data weakens," Morgan Stanley strategists said in a statement Monday.
Data released on Monday showed that US consumer spending rose for seventh consecutive months in September.
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