TOKYO: The euro slipped back in early Monday trade after German Chancellor Angela Merkel was dealt a fresh blow when her interior minister offered to quit in an escalating row over migration policy.

Interior Minister Horst Seehofer, who has called for tougher border controls, said he was ready to step down as minister and as chair of his Christian Social Union (CSU), junior coalition partner in Merkel’s government.

While the euro initially rose to as high as US$1.1698 in a knee-jerk reaction to the news, it quickly lost steam as Seehofer’s departure would be seen as making Merkel’s future even more uncertain.

The common currency last stood traded at US$1.16690 , down 0.2 percent from late U.S. trade on Friday. Against the safe-haven Swiss franc, it fell 0.1 percent to 1.1565 franc .

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

The dollar held firm at 110.70 yen , having hit a five-week high of 110.94 on Friday.

The Japanese currency showed no reaction to Bank of Japan’s tankan business sentiment data, which showed 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 rate hikes from the Federal Reserve.

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

That kept alive expectations the Fed will raise rates at least once and possibly twice by the end of year.

Yet investors are also becoming wary of possible disruptions from the trade disputes U.S. President Donald Trump’s “America First” protectionist policies have triggered.

Canada struck back on Friday at the Trump administration over U.S. steel and aluminum tariffs, imposing punitive…

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