Euro slumps against US dollar on failed German coalition talks

on Nov 20, 2017
Updated: Oct 11, 2019
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The euro slid sharply against the US dollar late Sunday, as talks between German political parties to form a coalition collapsed. Talks have been ongoing since the September election failed, yet again, to elect a single party to lead the country.

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The euro slid from $1.17967 to $1.17392 shortly before midnight Sunday, when German Chancellor Angelo Merkel declared the talks had ended unsuccessfully. By 0700 BST, the euro was trading at $1.17377.

$1.18 break through reversed

The slump reverses a break through $1.18 on Friday. Traders had been buoyed by European Central Bank (ECB) president Mario Draghi’s comments on the strength of the Euro Zone economy.

“The economic recovery is continuing but inflation developments remain subdued,” Draghi told his audience at the Frankfurt European Banking Congress.

“So, while we are confident in the recovery, we still need a patient and persistent approach to our monetary policy,” he said. Draghi added: “the major headwinds that were weighing on the recovery in recent years have now largely dissipated.”

However, the post-election talks have proved too contentious for an agreement to be reached. That has hit investor sentiment towards the euro, despite the much-improved growth outlook.

“The news is negative for the euro, but its longer-term implications aren’t clear yet,” said Mansoor Mohi-uddin, head of currency strategy in Singapore at NatWest Market, according to a Bloomberg report.

Other analysts’ views were mixed as to whether a further there would be a further decline in European trading, or if the move was overblown due to illiquidity in Asian market trading.

Next steps for Germany

Talks ended after one of Merkel’s potential coalition partners, the Free Democratic Party, walked out on a possible deal. Merkel will remain as acting Chancellor. She will meet with the German President to discuss the next course of action.

That could be to follow in the footsteps of UK Prime Minster Theresa May and form a minority government with her Christian Democratic party, or to call a fresh German election.

“It’s a day at the very least for a profound examination of Germany’s future,” Merkel, said to reporters after the talks failed.

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