Euro weakens on German polls results

Workers removing campaign billboards for Germany's election which saw Chancellor Angela Merkel winning a fourth term but without a majority in Parliament on Sunday. The rise of the far-right Alternative for Germany party and its entry to Parliament a
Workers removing campaign billboards for Germany's election which saw Chancellor Angela Merkel winning a fourth term but without a majority in Parliament on Sunday. The rise of the far-right Alternative for Germany party and its entry to Parliament also spooked investors and traders yesterday.PHOTO: REUTERS

Fortunes of other currencies also affected by elections elsewhere

The euro was knocked back yesterday as nervy investors weighed up the strong showing by an extremist anti-immigrant political party in Sunday's German elections.

Chancellor Angela Merkel won a fourth term but likely faces a fractured government with tough coalition talks in the months ahead amid concerns about the rise of Alternative for Germany (AfD), the first far-right party to enter Germany's Parliament in more than half a century.

The euro fell 0.55 per cent against the US dollar to US$1.1885 on fears that the coalition talks could distract from negotiations with Britain over its exit from the European Union, and efforts to integrate the bloc's remaining members.

The single currency slid 0.24 per cent against the Singapore dollar to $1.6043.

"The question is obviously now what it means for policy (in Germany)," Mr Mitul Kotecha, head of Asia FX and rates strategy at Barclays Bank, said on Bloomberg Television. "Investors are going to be closely following announcements on policy, especially given that the AfD is not just nationalist, but also anti-euro to some extent."

Bank of Singapore currency strategist Sim Moh Siong said the weaker euro could also have been due to movements on the US dollar side. "There has been substantial euro strength in recent months, while the US dollar has been beaten down, maybe too much.

"The markets may have realised they were too complacent on US rate hike expectations - that the Federal Reserve would not raise rates again this year - and were... too negative on the US dollar given the lack of progress on the tax agenda," Mr Sim told The Straits Times.

"But all of that is starting to change," he said, pointing to the US' promise to announce a plan on tax reform this week, and the Fed's hawkish stance on how rates will move at the end of the year.

Meanwhile, the British pound rose 0.2 per cent to US1.3477, after weakening last week on disappointment at the lack of Brexit details from Prime Minister Theresa May.

Elsewhere, elections and political uncertainty dominated trading too.

The New Zealand dollar lost 0.64 per cent against the greenback after the governing National Party failed to secure a ruling majority despite winning the largest number of votes in last Saturday's election.

The yen eased, following a two trillion yen (S$24 billion) stimulus package unveiled by Japanese Prime Minister Abe Shinzo ahead of an expected early election. The US dollar strengthened 0.04 per cent to 112.04 yen.

The Singdollar was not immune, slipping 0.34 per cent against the greenback to US$0.7404.

Mr Julian Wee, senior markets strategist for Asia at National Australia Bank, noted that the greenback-Singdollar pair has been moving largely in line with the overall US dollar movements.

Mr Wee believes that the results of elections elsewhere are unlikely to be "enough of a shock to have a lasting impact" on the Singdollar.

"Unless there is some significant market disruption in the near future, the Monetary Authority of Singapore is likely to look past this and focus on economic fundamentals."

 

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A version of this article appeared in the print edition of The Straits Times on September 26, 2017, with the headline 'Euro weakens on German polls results'. Print Edition | Subscribe