Euro declines after a difficult win for German Chancellor Merz

The euro fell in European trade on Wednesday against a basket of major rivals, on track for the first loss in four days against the US dollar on growing concerns about the political situation in Germany after a difficult vote for the new German Chancellor Friedrich Merz.

Later today, the important Federal Reserve’s policy meeting is expected to provide clues on the path ahead for US interest rates.

The Price

The EUR/US price fell 0.35% today to $1.1325, with a session-high at $1.1374.

On Tuesday, the pair rose 0.45%, the third profit in a row as the odds of a June interest rate cut by the ECB fell.

Merz

During a vote in the German Parliament yesterday, the first session to vote failed to vote in German Chancellor Friedrich Merz for the first time in post-war Germany

It was surprising as the governing coalition has more than enough votes for a majority, showing some dissent.

The failure of the vote caused a shock and division among the Christian coalition, with some calling for an immediate second vote and others fearing the repeat of failure.

The Second Vote

During the hurriedly arranged second vote, Merz managed to get 325 votes, enough for a majority, thus being elected the German Chancellor.

However, the failure of the first vote caused concerns about the stability of the coalition and Merz’s ability to unite his parties.

The Fed

Today, the Federal Reserve will decide on monetary policies, expected to hold interest rates unchanged.

The Fed’s monetary statement and Chair Powell’s subsequent press conference will likely provide clues on the path ahead for policies.

US President Donald Trump continued to pressure Powell to cut interest rates, however he said won’t fire him before the end of term in May 2026.

According to the Fedwatch tool, the odds of a Fed 0.25% rate cut in May stood at just 8%.

The odds of such a cut in June stood at a healthier 65%.