German Election Results Boost Euro
Yesterday's German election results, which saw the conservative CDU-CSU alliance emerge victorious, have given a boost to the single currency this morning. Positive forecasts for the EUR/USD have been reinforced.
The markets have reacted to the results, with the euro initially surging against the US dollar to 1.0528 due to speculation about the likely composition of the new German government. However, as no party secured a majority of the votes, a degree of uncertainty still lingers. The euro is currently trading at 1.0487 dollars.
For currency traders, the phrase "debt brake" is crucial. The conservatives have always advocated for strict budget discipline, while the Greens (who lost a quarter of their voters) wanted to relax it to stimulate the economy. Increased spending could relaunch growth, but at the cost of higher debt. The CDU-CSU coalition is likely to partner with the AfD (the far-right party that won over 15% of the votes) to form a government, which could lead to a strict monetary policy that will ultimately boost the euro. The information missing from the markets is the timeline for the coalition's formation and the new government taking office. Delays could cause the euro to fluctuate wildly.
Since the beginning of the year, the dinar has appreciated against the euro, while depreciating against the dollar. This week could therefore see a reversal of this trend, although it may not be sustainable. The foreign exchange market remains generally stable, with no risks of large-scale movements.
