The newsflow out of Europe has been intense in the past few days, with immigration, Brexit and the European Union’s counter-threats to President Trump’s import tariffs hogging the headlines. Yet EUR/USD remains pretty stable around 1.16 and Sterling continues to trade in a narrow range versus the currencies of the United Kingdom’s main trade partners. This suggests that it may take a dramatic set of events and/or macro data to really move the needle on these two currencies.
German Chancellor Merkel has for now at least shored up her position after yet another long meeting with Interior Minister Horst Seehofer last night resulted in an agreement on the issue of immigration into Germany. The long-standing 70-year old alliance between Merkel’s Christian Democrat Union (CDU) and its Bavarian sister party the Social Democrat Union (CDU) led by Seehofer has looked very precarious for the past week. There was indeed a risk of the CSU leaving the alliance and leaving Merkel’s coalition government with the Social Democrat Party (SPD) without a parliamentary majority after Seehofer threatened to resign if Merkel did not find a solution to the issue of non-EU immigrants crossing over from Austria into Bavaria.
Merkel and Seehofer agreed to set up transit centres on the German/Austrian border to process immigrants already registered in an EU-member state until they can be sent back. This bruising episode has ultimately left Merkel weakened less than a year into her fourth and final term even if the CDU, the leftist SPD and even some CSU members of parliament rallied behind her. Seehofer, who clearly over-played his hand, has rescinded his threat to resign. But this may prove too little too late, with opinion polls pointing to an electoral swing against Seehofer’s hard-stance on immigration and in any case the CSU’s standing within the alliance and government has been severely shaken.
