The single currency tumbled at market opening on Monday amid rising political tensions in Germany. The euro fell 0.60% against the US dollar and slid as low as 1.1722 after the Free Democratic Party (FDP) walked away the negotiating table, which would force Angela Merkel to form a minority government. The other solution would be to hold a fresh round of elections.
However, the sell-off was short-lived, which suggests that investors are not worried about potential negative impacts on Germany’s economic outlook. EUR/USD bounced back above 1.18. Indeed, there is little chance the political jitters disrupts the pace of business in the country.
On the equity side, the German DAX has opened slightly lower on Monday, at 12,932 points, before initiating a slow recovery towards Friday’s closing price. Overall, European indices were treading water this morning, with the exception of Swiss equities. The Swiss Performance Index (SPI) and Swiss Market Index (SMI) were up 0.50% and 0.66%, respectively, as Roche’s stock jumped more than 4% after the drug maker received approval for two experimental medicines for cancer and haemophilia.
Elsewhere in the FX market, the pound sterling extended gains this morning, with GBP/USD rising towards the next resistance at 1.3338 (high from October 13th), as investors turned positive again about Brexit negotiations. Indeed, there were rumours that the UK would be willing to open the purse strings regarding the Brexit bill.
By Arnaud Masset