German Chancellor Angela Merkel said on Monday that she had failed to arrive at an agreement with the Green Party and the Free Democratic Party to form a coalition government, and would meet President Frank-Walter Steinmeier soon, Reuters reported. Steinmeier has the power to call a fresh election in the country.
The Euro fell sharply against the Japanese yen in early trade on Monday after news that the talks between Merkel’s Christian Democratic Union and the Free Democrats had collapsed. The European currency declined to 131.16 against the Yen, its lowest value since September, before recovering to 131.47 at noon (Japan time).
The Euro also declined over 0.4% against the United States dollar to $1.1734 on Monday, after reaching a one-month high of $1.1862 on November 15. But market analysts said the German political situation may not have a long-term impact on the European currency.
“I don’t think this [the failure of coalition talks] is going to be a massive driver,” Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore, told Reuters. “The news is negative for the euro, but its longer-term implications are not clear yet,” Mansoor Mohi-uddin, head of currency strategy in Singapore at NatWest Markets, told Bloomberg.