Euro to US Dollar Exchange Rate Falls as German Coalition Issues Remain

Euro to US Dollar Exchange Rate Drops on Growing Concerns over German Coalition

The Euro has fallen by -0.5% against the US Dollar today, as German coalition talks drag on.

German Chancellor Angela Merkel’s CDU/CSU union took the most votes in the late 2017 federal election, although this was not enough to secure an outright majority.

As such, Merkel has been forced into uncomfortable coalition talks.

Discussions initially took place between Merkel, the Green Party and the FDP, but eventually collapsed when the FDP withdrew over irreconcilable differences.

Merkel has since tried to forge an alliance with the SPD party, which was previously the CDU/CSU coalition partner in the previous administration.

A rerun would end the issue of there being no government, but the SPD had intended to cast off its former partners and rule on its own terms this time round.

Speaking recently, SPD General Secretary Lars Klingbeil has said;

‘We are all aware of the joint responsibility that we have, for the future of Germany, of Europe.

[But we need a] new political style. We live in new times, and these new times demand a new politics’.

If talks appear to be going smoothly this week, the Euro could stage a recovery and rise against the US Dollar.

In the event that talks break down for a second time, however, the Euro could plummet against the US Dollar and other peers like the Pound or Australian Dollar.

Away from any political shocks, the EUR/USD exchange rate could rise if the German trade surplus rises and Eurozone unemployment falls on 9th January.

Signs of Three US Interest Rate Hikes Pushes US Dollar to Euro Exchange Rate Higher

The US Dollar has firmed against the Euro today, with the pairing exchange rate rising to the region of 0.8349.

This appreciation has been caused by recent statements from John Williams, President of the Federal Reserve Bank of San Francisco.

Williams, who is voting on Fed interest rate decisions this year, has recently discussed the possibility of there being three US interest rate hikes in 2018.

The Fed President maintained an optimistic mood about the US this year, stating;

‘We're in a pretty good situation: the economy is doing great, everyone expects us to raise [interest] rates gradually...and if the data changes we can respond to that.

I'm not worried about inflation suddenly taking off’.

Giving a future forecast, Williams added that;

‘[The economy will be] in a very positive place two years from now: I think we'll be at 2% inflation and around 4% unemployment’.

Looking ahead, the US Dollar could see a late-week rise against the Euro if US inflation levels are reported higher on 12th January.

On the month in December, core inflation is tipped to rise slightly, which could raise hopes about a possible fourth interest rate hike in 2018.