The single European currency is very sensitive to any political developments in the currency bloc as a whole and in Germany in particular. Angela Merkel reached a political deadlock which nearly made the euro take a nosedive.
Mrs. Merkel failed to form the coalition government. The Free Democratic Party (FDP) walked out of talks, reaching no agreement and refusing to form a coalition. The Chancellor reported about the outcome of negotiations to the country’s President. Now she may try to act as a parliamentary minority and persuade opposition parties to vote for her. The other scenario is that she will return to the negotiating table with some other beneficial offers. As soon as the news about talks collapse appeared, the euro went into a tailspin against the US dollar, losing 0.5% for a day. However, later on, the single currency managed to offset its losses.
Traders shifted their attention to economic reports from the region which provided solid results. The European economy continues to expand, the labor market conditions tighten, and the output increases. Remarkably, Germany maintains the status of the leading European economy despite the political turmoil. The inflation rate is the only sore point. Once it is solved, the euro will be safe and sound.