Pressure grew on German Chancellor Angela Merkel and her policies over the weekend, following massive losses for her sister party the CSU in the Bavarian state elections.
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Whilst these results were seen as a significant blow to Merkel and her on-going leadership, the key question for investors is how this may impact the EUR and its value over the coming weeks.
Whilst there was little movement for the single currency following the results, it may be that investors are waiting for any on-going fallout from the decision, whilst also factoring in the lack of any final Brexit deal between the UK & EU.
The EUR itself made gains against GBP and held its position following reports on Sunday that a Brexit deal was yet to be finalised, but may have seen its value increase further against the pound had it not been for this unexpected political result.
Wednesday is a key day in the diary, with the start of the much-anticipated EU summit in Brussels.
This was the point by which the UK & EU were meant to have agreed upon a Brexit plan, so that the final details could be thrashed out ahead of March’s deadline for the UK to leave the single bloc.
As of now a deal is still yet to be agreed. This lack of certainty has helped boost the value of EUR in recent months, as investors have sold off their GBP positons in earnest, which has ultimately been to the benefit of the single currency.
However, with uncertainty growing in some of the Eurozone’s key economies and a prospective Brexit deal just days away, is this trend about to change?
Personally, I would be wary about assuming that the EUR will return to its recent lofty heights, as any final agreement on Brexit, coupled with any political destabilisation in Germany or other key Eurozone economies, could lead to a sell-off of the single currency and cause its value to drop.
With little data of note for the Eurozone this week apart from some inflation figures on Wednesday, expect the EU summit and Brexit talks to dominate the headlines once again.
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