Euro slides on coalition woes

By Masayuki Kitano ( Reuters Singapore )

SINGAPORE (Reuters) – The euro hit a two-month low against the yen on Monday, as German Chancellor Angela Merkel’s efforts to form a three-way coalition government failed, raising concerns over political uncertainty in the euro zone’s largest economy.

Merkel said on Monday she would meet the German president to inform him that she had failed to form a coalition government with the Greens and the pro-business Free Democrats (FDP).

The decision to meet President Frank-Walter Steinmeier, who has the power to call a new election, signalled that Merkel would not seek a minority government with the Greens after the FDP unexpectedly pulled out of the coalition talks.

The euro slid broadly in early Asian trade after news of the breakdown of the coalition talks among German parties reached the market, but later pared some of its losses.

Against the yen, the euro was last down 0.4 percent on the day at 131.65 yen. At one point, the euro slipped to 131.16 yen, its weakest level since mid-September.

The euro fell 0.4 percent on the day to $1.1744. It slipped to as low as $1.1722 in early Asian trade, pulling away from a one-month high of $1.1862 that had been set on Wednesday last week.

“I don’t think this is going to be a massive driver, but that’s certainly the influence that we’re getting right off the bat,” said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore, referring to the political developments in Germany.

“For the longer-term…I think the main driver is going to be what the ECB does,” he said.

The euro had been supported recently by the strength of euro zone economic data and speculation that the European Central Bank (ECB) could start sounding more hawkish about its monetary policy outlook, Innes added.

Improving economic prospects in the euro zone have been a positive for the euro, with growth in the economic bloc having exceeded that of the United States in the third quarter.

Reuters

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Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes
Stephen Innes

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