Euro Hits Seven-Week Lows as German Politics Weigh on Currency
The Euro has hit fresh seven-week lows against the US Dollar, extending losses on Tuesday. This comes despite moderate risk appetite triggered by the recent pullback in Oil prices.
The growing political uncertainty in Germany is a major contributor to this weakness. Chancellor Friedrich Merz's CDU party suffered a severe defeat in last weekend's state elections, failing to reach the 5% necessary to enter the parliament for the first time in postwar Germany.
Merz has vowed to remain in power until the economic reforms planned by his cabinet have been implemented. However, this has raised serious questions about his support and the fate of the Eurozone's EUR 2 trillion budget proposal, which includes a significant boost to the bloc's defense program.
A Financial Times report citing German officials involved in the talks affirms that the weekend's elections have forced the EU to reassess what it can achieve in the coming months. Meanwhile, concerns about France's debt add pressure on the Euro, as a minor rating agency has downgraded its government debt, which has reached its highest level since 1978.