Homepage » News » EUR/USD » Merkel’s Lower Vote Share in German Election Triggers EUR USD Slump

Merkel’s Lower Vote Share in German Election Triggers EUR USD Slump

The Euro has remained down against the US Dollar for the second day in a row this week, failing to shift from the -0.7% drop in the pairing. This has led to the Euro trading lower, down from 1.1877 to 1.771.

Traders have been looking at the German election result in more detail. In addition to concerns that it could take months to form a government, there have also been fears that the result will damage Angela Merkel’s plans for greater EU integration.

(First published September 26th, 2017)

The Euro has dropped by -0.7% against the US Dollar today, in the wake of a disappointing German Federal Election result.

  • EUR USD rate drops to 1.1877 – USD EUR trades up at 0.8417
  • German election aftermath weakens Euro – Lengthy coalition talks begin
  • US Dollar advances on Fed comments – Support seen for December interest rate hike
  • Near-term Euro movement possible on Draghi speech – US Dollar could advance on Fed remarks

Last week, the Euro fluctuated wildly against the US Dollar, closing trading on Friday near to its opening rate on Monday.

Decreased Vote Share for CDU Party Leaves Difficult German Coalition Talks ahead

The main Euro-affecting news today has been that the 2017 German Federal Election has now finished.

The result has been mixed – on the plus side, Angela Merkel’s stability-associated CDU/CSU alliance remains the largest party in the country.

Problematically, however, both the CDU/CSU and former coalition partners the SPD have lost votes to the right-wing AfD party.

The CDU/CSU pairing is expected to govern Germany for a fourth term in the coming months, but before then the party needs to form a coalition majority.

The SPD have resigned themselves to being the opposition, so Merkel is expected to face the unenviable task of uniting the German Green party and FDP party, both of which have longstanding rivalries with each other.

As well as the German news dominating the headlines, there has also been turbulence in Spain where Catalonian campaigners have been distributing a million ballot papers.

Located in eastern Spain, the region of Catalonia is seeking independence, something that the Spanish government has firmly tried to prevent.

As well as arresting senior officials from the Catalan administration, civil officers have been raiding regional government buildings and trying to shut the vote down.

There is due to be a vote of sorts on October 1st, so barring any further German updates this could be the dominant issue going into the weekend.

US Dollar Recap: USD Strengthened by Kaplan’s Comments

With little direct US news out yet today, the US Dollar has primarily been influenced by last week’s comments from Robert Kaplan.

The Federal Open Market Committee (FOMC) voting member was broadly supportive of a third interest rate hike in 2017, stating;

‘I am open-minded on one more rate increase [but] the structural change in our economy is more powerful and the rate of structural change is greater and it is creating some headwinds for inflation and affects wages also’.

If future US economic measures look positive then the US Dollar may strengthen considerably, given the background support from Kaplan.

Future EUR USD Forecast: Volatility possible on Central Banker Speeches

In the near-future, the Euro could recover against the US Dollar when European Central Bank (ECB) President Mario Draghi speaks.

While the President is not expected to make major policy announcements until October, he could still influence the Euro with any surprise comments about ECB monetary policy.

Potentially outweighing Draghi’s contribution today will be a trio of speeches from Federal Reserve officials.

Coming over the afternoon and later tonight, these may provide the force for a USD advance.

If policymakers go against Robert Kaplan’s pro-rate hike attitude, however, then the US Dollar could dip over concerns about no December rate hike after all.

Current Interbank EUR USD Exchange Rates

At the time of writing, the Euro to US Dollar (EUR USD) exchange rate was trading at 1.1877 and the US Dollar to Euro (USD EUR) exchange rate was trading at 0.8417.