The euro dips after far-right exceed expectations in the German elections

LONDON — The value of the euro dipped slightly on Monday morning following the surprise results of Sunday’s elections in Germany.

Chancellor Angela Merkel secured a fourth consecutive term in the Bundestag, but the far-right Alternative für Deutschland (AfD) gained seats in parliament for the first time in the party’s history.

AfD won 13.5% of the vote and is projected to secure 87 seats in parliament — the first time a right-wing party will sit in the Bundestag since the defeat of the Nazis in 1945.

“Merkel’s diminished authority — and the rise of a party with links, and similar Eurosceptic views (among other things), to UKIP and France’s National Front — appears to be weighing on both the euro and the region’s indices,” Connor Campbell, an analyst at SpreadEx, said in an email on Monday morning.

The euro began falling on Sunday evening after the election results came in and it continues to slide on Monday morning.

By 8.15 a.m. BST (3.15 a.m. ET; 9.15 a.m. CET) the single currency has dropped close to 0.35% against the dollar to trade at $US1.1910, as the chart below illustrates:

The euro’s fall could be down to fears in the markets that it may now take Merkel and her CDU/CSU alliance some time to form a new government thanks to its relatively poor performance in the election.

“The chancellor will be forced into bed with the Greens and the Free Democrats (FDP) in a Jamaica coalition,” Lee Wild, Head of Equity Strategy at Interactive Investor said in an email.

“Any extended period of uncertainty poses a problem, certainly if the FDP’s dislike of Macron threatens Germany’s relationship with France. Markets won’t like that.”

See the latest EUR-USD movements here.

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