The euro has posted slight gains in the Wednesday session. Currently, EUR/USD is trading at 1.1844, up 0.18% on the day. On the release front, German Final GDP accelerated to 0.8%, matching the forecast. German and Eurozone Manufacturing PMIs beat their estimates, with readings of 62.5 and 60.0, respectively. Later in the day, the ECB releases the minutes of its October policy meeting. US banks are closed for the Thanksgiving holiday, and there are no US events on the schedule. On Friday, Germany releases Ifo Business Climate.
The political deadlock continues in Germany, as President Angela Merkel faces her toughest challenge since coming to power 12 years ago. With the Free Democratic Party pulling out of coalition talks on the weekend, Merkel appears unable to form a coalition government. Merkel has said she would rather hold another election than try to govern with a shaky minority government. President Frank-Walter Steinmeier has urged the parties to redouble their efforts in order to reach an agreement, warning that another election would cause uncertainty in German as well as Europe. The crisis in the eurozone’s largest economy could paralyze the European Union, as Merkel has become the unofficial leader of the bloc. Euro-supporters such as French President Emmanuel Macron have ambitious plans to strengthen European integration, but this will have to wait until Merkel can straighten out her domestic challenges.
With Germany in political paralysis, there are concerns whether this will effect the robust German economy. In the short-term, the economy should be able to weather the crisis, but future growth could be in jeopardy if the political deadlock continues. The euro and German stock markets have remained steady since the coalition talks fell apart last week, indicating that investors remain upbeat about the German economy. There was positive news on Thursday, as German Manufacturing PMI improved to 62.5, above the forecast of 60.4 points. This marked its highest level since 2010. Eurozone Manufacturing PMI also kept pace, climbing to 60.0, compared to an estimate of 58.3 points. The strong numbers point to strong manufacturing sectors in Germany and the eurozone, which have been boosted by an increase in global demand and stronger domestic consumption.
