EUR/USD: German election uncertainty has limited initial impact on euro – MUFG

The euro has been little moved as widely expected by the release of the results from yesterday’s German election. Complicated talks to form government are set to last for several months but the euro is expected to stay unnerved, in the view of strategists at MUFG Bank

The race to succeed Chancellor Angela Merkel has resulted in a fragmented parliament

“The wafer-thin margin of victory for the SPD creates even more uncertainty over the likely formation of the next government and leaves an array of potential coalition options still on the table. Coalitions talks are expected to take weeks and possibly months. The continued uncertainty is one reason why there has been limited euro reaction to the initial election results.” 

“The close results further reinforce the need for political parties to compromise to form the next government. It most likely favours only a modest shift in policy direction in Germany and thereby more limited impact on the performance of the euro.”