The EUR/USD currency pair seems to be struggling to pick a direction this week, resulting in about a cent’s consolidation. Friday highlights the growing tension around Sunday’s parliamentary elections in Germany, with PMI indicators in the background. The Polish zloty, along with most emerging market currencies, is under broad-market dollar pressure.
Germany burdens Euro
Accelerated parliamentary elections will take place this Sunday across our western border. The election in Germany is crucial for several reasons. The Federal Republic of Germany is the EU’s largest economy, accounting for around 30% of the Euro zone’s GDP. At this geopolitical moment, we cannot stress enough how essential Berlin’s strong voice is. Polls cannot depict the post-election landscape as at least two parties are teetering on the edge, and Germany uses a mixed electoral system (part single-member and part proportional). The CDU/CSU union is predicted to win the battle, but right behind, likely in second place, is the AFD, which currently is unable to form a coalition. The main uncertainty surrounding the elections revolves around the configuration necessary to establish a parliamentary majority. If the Christian Democrats require only one coalition partner (most likely the Greens or possibly the SPD) to govern, then negotiations should be fairly swift and smooth. However, a minimum three-party coalition might make talks longer and more complex. Such a scenario would pose a burden on the euro. German uncertainty is apparent during Friday’s session where the common currency struggles to maintain earlier gains.
France, the new drag
The euro’s position during Friday’s trading didn’t improve with the so-called forward-looking readings. PMI indicators result from surveys conducted among managers responsible for orders in businesses. The key threshold is 50 pts, segregating growth from recession. French services fared the worst, plummeting significantly to 44.5 pts instead of the forecasted rise to 48.8 pts (lowest in 17 months). Industry in this country fared slightly better, but a score of 45.5 pts is still far from positive territories. Surprisingly, France has become the new economic drag in Europe; Germany performs much better by comparison. Service PMIs in Germany stably stand above 52 pts. The industrial situation looks even more interesting. Although a score of 46.1 pts may seem underwhelming at first glance, it represents the best result in Germany for nearly two years (since March 2023)! This outcome has resulted in a better than expected result for industry across the Eurozone (47.3 pts) but worse than forecast PMI for services throughout the monetary union (50.7 pts).
EUR/USD rate below 1.05 $
At the beginning of the month, a fair amount of analysts were pondering when we would see parity on EUR/USD. By mid-February, the narrative shifted to considering the end of the dollar-strengthening trend. Where do we stand currently? The Eurodollar is seemingly waiting for new strong impulses, as this week we can talk about a consolidation trapped in approximately a cent-wide sideways corridor. On Friday, the EUR/USD rate reversed from 1.05 $, but the closer we gravitate towards the US opening on Wall Street, the momentum of the drop wanes. Nevertheless, the relatively stronger “greenback” in the broad market restrains most emerging market currencies, including the zloty. Consequently, the dollar’s rate exceeded 3.97 zł, the euro-rate remains close to 4.16 zł, and the franc rate returns around 4.41 zł.
Author: Adam Fuchs, currency analyst for Walutomat.pl
Source: https://managerplus.pl/niepewnosc-polityczna-oslabia-euro-czy-kurs-dolara-wystrzeli-41452
