Merz elected after rocky start, Euro shrugs off drama – Commerzbank

While some politically savvy people may have fallen off their chairs yesterday after the first round of voting for the new German Chancellor, the fx market seemed less than impressed, Commerzbank's Head of FX and Commodity Research Thu Lan Nguyen notes.

FX markets unfazed by initial German chancellor setback

"EUR/USD fell briefly after the news that Friedrich Merz had not received the necessary votes for the 'chancellor majority', but recovered quickly. The exchange rate even ended trading at higher levels. However, this is unlikely to be due to the fact that Merz was ultimately elected Chancellor in the second round."

"Rather, the initial reactions of many observers indicated that Merz was expected to become chancellor after a second round of voting anyway. Potential alternatives such as a new election - as the dissenters from the coalition ranks must have realised - would have been rather self-defeating for them."

"All's well that ends well? Hardly. The initial election defeat has shown how fragile the majority under which Merz will govern is. After all, it is completely unclear what prompted the dissenters to make their decision - was it dissatisfaction with Merz himself or with the coalition agreement? Accordingly, scepticism is appropriate with regard to the large fiscal package that the new government is planning and therefore also with regard to the euro."