Euro Shrugs Off AfD Victory as GBP/EUR Exchange Rate Remains Below Key Level

The British Pound to Euro exchange rate (GBP/EUR) has remained below the important 1.1650 level as the Euro shrugged off renewed German political uncertainty.

The AfD's strong regional election result in Saxony-Anhalt has raised questions over the stability of Chancellor Merz's government, but resilient Eurozone growth and expectations of another ECB rate hike this week have so far prevented a significant Euro sell-off.

ING expects further GBP/EUR resistance close to 1.1650 with potential short-term support around 1.1615. The ECB will announce its latest policy decision on Thursday ahead of the Bank of England decision next week, and MUFG commented that 'the ECB is widely expected to deliver a second 25bp rate hike in response to the energy price shock.'

Rabobank expressed considerable concerns surrounding the underlying environment, stating that 'the “sensible centre” doesn’t seem to have any answers to those huge problems regardless of whether one likes the AfD and BSW proposals. As such, could markets start considering a second German structural shift in the space of a few years?