Euro hits fresh seven-week lows as German political uncertainty offsets risk-on mood

The Euro (EUR) has fallen to seven-week lows below 1.1450 against the US Dollar (USD) as German political uncertainty impacts its performance. Chancellor Friedrich Merz's CDU suffered a significant defeat in recent state elections, failing to reach the required 5% threshold to enter parliament for the first time since World War II.

This political setback has raised concerns about the stability of Germany's support for the Eurozone's EUR 2 trillion budget proposal, particularly if the pro-Kremlin Alternative for Germany (AfD) gains more influence in the national parliament. Additionally, a downgrade of France's government debt by a rating agency has added pressure on the Euro amid ongoing bond market turmoil.

The European Central Bank (ECB) president, Christine Lagarde, is scheduled to address a conference organized by Ukrainian and Polish central banks, where she is expected to discuss the central bank's plans for monetary policy amidst the current economic climate. The US Dollar has been gaining strength due to rising US yields, with market participants anticipating additional Federal Reserve rate hikes in the near future.

The Euro, used by 20 European Union countries, is the second most traded currency globally after the US Dollar, with an average daily turnover of over $2.2 trillion. The ECB's primary responsibility is to maintain price stability, and its interest rate decisions can significantly impact the Euro's value. Data releases such as Eurozone inflation, GDP, and trade balance are crucial indicators that can influence the strength of the single currency.