in among the foreign-exchange fireworks, the euro looks like the currency 2016 forgot<u+2014>at least against the dollar. that could change as the end of the year approaches. the euro has proved remarkably stable against the dollar this year. while the pound has plummeted and many emerging-market currencies have made strong gains, the single currency has moved for months in a narrow range centered around $1.12. but in the past week it has started to move, hitting its lowest point in two and a half months on thursday morning just below $1.10. the deliberations at the u.s. federal reserve in september show that policy divergence is back on the agenda, with the likelihood of a rate rise in the u.s. increasing. the gap between u.s. and german two-year bond yields<u+2014>locked, like the euro, in a narrow range for months around 1.3 percentage points<u+2014>has now widened to above 1.5 points. meanwhile, the european central bank next week could seek to strike a slightly more reassuring tone on its bond-purchasing program, although investors seem likely to have to wait until december for action. the other force that could drive the pair is political risk, and more in the u.s. than in europe. the u.s. election campaign is entering its final phase . markets tend to pay limited attention to politics until absolutely forced to consider them. the pound has shown what can happen when markets get their assessment of the political outlook<u+2014>and thus the structural basis for an economy -- wrong. a victory for hillary clinton would likely diminish any political-risk premium priced into the dollar, potentially giving the greenback a lift. based on polling, a win for donald trump at this point would be an even bigger surprise than brexit, stoking uncertainty and volatility . the moves in the euro against the dollar might not be as explosive as that seen for other currencies this year. but the exchange rate could well prove more lively in the final quarter than it has for some time. write to richard barley at richard.barley@wsj.com
the fed, the election and a wake-up call for the euro  - wsj
richard barley