The Euro has continued to weaken against most of its major counterparts following the German elections at the weekend. It is now expected that Angela Merkel will have to enter tough coalition talks, following on from her party’s (Christian Democratic Union) underwhelming win at the weekend. Whilst these talks are taking place I would expect the Euro to remain under pressure. This has helped the Pound to advance on the Euro today, helping the GBP/EUR exchange rate to reach a two month high.

The reason why the coalition talks are of such concern to investors is that through failing to win a majority, Angela Merkel has now opened the door to the far right Free Democratic Party or FDP party. Reports have already emerged the FDP party are set to be a thorn in the side for both Angela Merkel and could be a real problem for the Euro.

Although the FDP are pro-business, offering voters and businesses €30bn worth of tax cuts in order to stimulate Germany’s economy, and in the longer term could help the Euro, as Germany remain the driving force of the Eurozone. The FDP need to tread carefully, last time they were in this position back in 2013, the party failed to make it into Parliament despite having been collated with the CDU Party for 4 years and struggling to make any impact. Analysts expect that too many concessions could affect their position and loose them seats.

Nevertheless, one of the main pitfalls for the Eurozone earlier this year was the fear of far right parties getting into power in the main players of Europe, with France Italy and Holland seemingly brushing the more extreme parties under the mat for now. Will this party be a pro-business and therefore have a positive effect on the Euro? Or will this coalition lead to Merkel not being able to push through anything without a backlash from her opposition?