EUR under pressure from German politics – BBH

The euro was sold in early Europe, and marginal new lows were recorded (~$1.1715) as German politics remains the chief talking point, accoridng to analysts at BBH.  

Key Quotes

“The German President is sounding out the different parties to see if there is a possibility of a coalition.  Initial surveys suggest Merkel is in tune with the public in preferring new elections to a minority government.  Both options are unusual for modern Germany.”  

“We suspect talk of the end of Merkel's tenure is greatly exaggerated.  Survey suggest Merkel's CDU will remain the largest party, and within the CDU, there does not appear to be a compelling alternative.  At first, it seemed that a minority government would be preferable to new elections.  The fear seemed to be that new elections would see the AfD bolstered, but the initial poll suggests this is not the case.  The FDP is seen as a somewhat irresponsible and may suffer on its leader's gamble.  The Greens appear to have won a few new supporters.”  

“Investors do not seem to think that the unsettled political scene is a threat to the stability of economic performance in Germany.  The DAX gapped lower yesterday and quickly filled the gap to close 0.5% higher.  It is extending those gains today to trade at a five-day high.  Technically, we see immediate scope for another 0.5-1.0% gain.”  

“The euro may be helped by some cross-rate gains.  Concern about house prices and weak interbank rates continue to weigh on the Swedish krona.  The euro surged above SEK10.0 for the first time since last November.  We note that the three-month interbank rate Sweden fell to a record low yesterday.  Ironically, while the Swedish krona is the weakest of the major currencies today, the Norwegian krone is battling the Aussie for the top position, and this is even though three-month interbank rates also fell to record lows yesterday.”