The euro fell Monday in early Asian trading after Angela Merkel won the fourth term as the German Chancellor Sunday as traders engaged in sell-offs on uncertainty around the Merkel’s party forging a coalition, according to reports.
The shared currency by most European countries was down 0.6 percent to $1.1185, just as the yield on Europe’s largest economy’s benchmark 10-year Bund is down 2.6 basis points at 0.42 percent.
The euro is under pressure because Merkel’s ruling Christian Democrats led coalition is facing uncertainty with its previous partner, Social Democrats having lost seats.
Daisuke Karakama, chief market economist at Mizuho Bank stated in a report that “the market reacted by selling the euro on the possibility of Merkel running into difficulties in forging a coalition,” said in Tokyo. This happened after a two day rising steak.
The German election results prompted some investors to lock profits into one of the most profitable currency trades of the year.
“The impact is limited as the German election results is more of a domestic political story for now rather than a regional European trend and the euro will be more sensitive to any shift in direction from the European Central Bank policy,” commented Viraj Patel, an FX strategist at ING Bank in London.
Despite winning most of the votes Sunday, the election left Merkel scrambling for a coalition after Social Democrats, her current coalition partners said it would be in opposition having fallen to 20.7 percent in projections.