The European Single Currency, euro, on Monday, September 25, depreciated after a weekend victory for German Chancellor Angela Merkel that was accompanied by a surge in support for the far right.
The euro EUR= was last down more than half a percent against both the dollar and sterling EURGBP=.
The euro has been one of the best performing currencies against the greenback this year, having gained more than 13 percent against the dollar.
Support for Merkel’s conservatives unexpectedly slumped to its lowest since 1949 and the Social Democrats, partners in the outgoing coalition, said they would go into opposition.
“Markets don’t like uncertainty and the German election results have injected a healthy dose of (that),” said Richard Falkenhall, a strategist at SEB AB in Stockholm.
The German election results mean “the process of building a coalition could take months and that the resulting agreement will be a much weaker government in the euro zone’s largest economy,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in a note to clients.
The news from Germany is likely to refocus investor attention on other political events in Europe, particularly a divisive independence referendum in Catalonia on Oct. 1 and Italian elections next year.
Markets may conclude that the political backdrop in the euro zone remains disjointed and poses a threat to investment potential in the medium term, Rabobank strategists said in a client note.
Meanwhile, the dollar also surged 1 percent against the New Zealand dollar NZD= following that country’s election over the weekend, which left the ruling National Party short of the necessary votes to rule without forming a coalition.
