The future seems a little more uncertain for the euro following the outcome of the German election.
The common currency has been under pressure since markets opened Monday after provisional results showed a weakened Angela Merkel and a surging far-right Alternative for Germany (AfD) party that gained its first seats in parliament. The currency fell 0.6 against the dollar for the session, trading at $1.1872 at around 1:00 p.m. London time.
Traders seem divided when it comes to the euro’s performance in the near term, but point out that the European Central Bank (ECB) will still be the ultimate underlying factor for the currency.
“The reaction in the EUR and in the credit markets is predictable, but with the ECB still a powerful force in the European debt markets, the moves are unlikely to turn violent,” Stephen Gallo, European head of FX strategy at BMO Financial Group, said in a note.
Sunday’s vote surprised many traders with a more fragmented German parliament. Merkel’s center-right Christian Democratic Union (CDU) and its Bavarian sister-party the Christian Social Union (CSU) won 33 percent of the vote, down from 41.5 percent in the previous election. The pro-business FDP party, which placed fourth with 10.7 percent of the votes, has said it is open for coalition talks with Merkel’s CDU. The Greens are set to join coalition talks too, which could ultimately form Germany’s first four-party government in decades. However, coalition talks will not be easy. At the same time, the far-right AfD beat pollsters’ predications and got 12.6 percent of the vote share.