Euro drops as German vote sinks in, gold price retreats

Berlin-Germany (Sept 25)   Politics dominated trading on Monday, with the euro sliding as Germany’s election result foreshadowed potentially complex political-coalition building. European stocks were mixed following declines in Asia, and most government bonds advanced.

The  common currency weakened against almost all its major peers after Chancellor Angela Merkel won Germany’s election with a smaller share of the vote, while the country’s main far-right party, Alternative for Germany, posted a surprisingly strong result.

The yen pared a drop as Japan’s prime minister unveiled a fresh stimulus package and said he’ll dissolve the lower house of parliament ahead of a general election. Stocks in Europe edged higher helped by the weaker euro, but shares in developing nations headed for a third day retreating.

“The question is obviously now what it means for policy going forward” in Germany, Mitul Kotecha, head of Asia FX and rates strategy at Barclays Bank, said on Bloomberg Television in reference to the election.

“Investors are going to be closely following announcements on policy, especially given that fact that the AfD is not just nationalist, but also anti-euro to some extent.”

The process of building a new government could take weeks, so markets may well move on from the result quickly. Trouble continues to foment in the Catalonia region of Spain, while central banks grandees including Federal Reserve chair Janet Yellen and European Central Bank president Mario Draghi are among those scheduled to speak this week.

Meanwhile, the New Zealand dollar lost as much as 1.1% amid disappointment the ruling party failed to get a majority in a weekend vote, kicking off what could be weeks of coalition-building talks.

Fin24