GBP still looking solid
Angela Merkel scored a huge personal victory in the German elections in a stronger showing than expected. Merkel’s Christian Democratic Union (CDU) party fell just three seats short of that needed to achieve an outright majority in the Bundestag. Remember coalition governments are far more common on the continent.
But while Sunday’s German election results were seen as a resounding vindication of Merkel’s role as a Eurozone problem solver and crisis manager, her former coalition partners did not fare so well. The classical liberal Free Democrats (FDP) failed to secure the requisite 5 percent of the vote required to take seats in the German parliament for the first time in 50 years. As a result Merkel will now negotiate with another party to form a majority.
The news of Merkel’s success will likely see Euro well supported for the start of this week, however there is just a shadow of risk around what policies she will have to compromise on in order to secure a coalition Government.
Looking ahead this week the most significant UK data will be the Q2 GDP figures released on Thursday morning. The market is expecting the British economy to have expanded 0.7% inter-quarter. The result, should it comes as expected, would reinforce the recent positive momentum in the UK data, fuelling expectations of a rate hike sooner than the BoE’s estimates.