Euro trading sentiment was weaker Monday, in the wake of the German election result and the surprise second straight decline in the Ifo business sentiment index. In mid-morning trading, the euro had lost ground against both the British pound and the US dollar.
German voters once again elected Angela Merkel as their Chancellor. However, the coalition she will lead is set to be quite different from the previous one, as Germans put more power in the hands of the nationalist AfD party.
Chancellor Merkel begins a fourth term with the biggest majority, despite it being her CDU/CSU party’s worst election result. Merkel’s party lost ground to nationalist party, AfD, which won seats for the first time in a German election.
The CDU/CSU’s previous coalition partner, the social democratic SDP, meanwhile, will move into opposition following the huge loss of support it experienced in the Federal elections.
While the result completely unexpected, the confirmed rise in popularity of the AfD sparked some protests in Berlin, Frankfurt and Cologne on Sunday night.
The September release of the Ifo business sentiment index, added further downward pressure on the euro currency, as it posted a surprise decline for a second straight month. The closely followed index, based on survey results from some 7,000 German business, slid to 115.2 from August’s 115.9.
While that level remains well above the historic average of 102.1, it suggests the recent gains in economic growth experienced in German and across the euro zone, may slow a little in the final months of 2017.
“Companies were less satisfied with both their current business situation and their short-term outlook than in August,” the Ifo business climate press release stated.
In addition, Ifo’s chief economist Klaus Wohlrabe told Reuters reporters, that while the German economy would likely weaken in the third quarter form the first half of 2017, the whole year would still be a positive one, in economic terms.