Businesses should prepare for currency swings ahead of Germany’s election

Germany’s Federal Elections will take place on Sunday 24 September 2017. Despite polls suggesting the current Chancellor of Germany, Angela Merkel, will yet again be victorious and continue to lead the country, markets are nonetheless likely to react to the event, which could catch many businesses off guard, due to potentially significant currency swings.


That is the message from Paul Langley, managing director of Godi Financial. He claims businesses without a strategic approach to foreign exchange (FX) exposure could suffer during such political events, as currency markets react to the polls and final election outcome.


Seen as one of the world’s most powerful leaders, a win for Merkel would be the option that would provide the most stability for the people of Germany and the European Union (EU), especially in light of the Brexit negotiations currently underway. More speculation is focussed on Merkel’s choice of coalition partner rather than who will win the election. With Germany being at the forefront for shaping the EU’s policies, this decision will have a significant bearing on domestic and foreign policy in coming years.


Germany is the largest economy in Europe and so the impact of its Federal Election can send ripples across Europe. Even if a guaranteed fourth term is on the cards for Merkel’s Christian Democratic Union (CDU), much interest surrounds the shape of a likely coalition with its nearest rivals, the Social Democrats (SPD), and/or the Free Democratic Party (FDP), the Left (Linke) Party, Green (Grune) Party, or Alternative for Germany (AfD). However a collation involving the extreme right party, AfD, has been ruled out, but the AfD could emerge as the main opposition party in Germany.
How the structure of the coalition will affect the extent of Merkel’s power is another uncertainty that could be a worry for the UK in particular. As well as Brexit negotiations, the UK’s relationship with Germany over trade deals could be dramatically affected depending on the election result, which could cause yet another headache for UK Prime Minister, Theresa May.


Langley commented:


“Germany has an incredibly influential position within the EU and so the importance of these elections shouldn’t be underestimated. We have seen the Euro rise against many of the major currencies recently, which suggests confidence in Merkel maintaining her position as Germany’s leader, as well as a positive vibe in the country.


“As with any election, market fluctuations and volatility are expected and so for those businesses with Euro exposure, planning ahead is crucial. Being caught short on FX dealings because of an unstable market can be avoided with an FX partner that can help you to hedge accordingly. It can also help businesses to take advantage of favourable movements and benefit from any strength in the Euro. 
“However, we’ve witnessed plenty of political and economic uncertainty of late, what with Brexit, Trump coming into power and Theresa May’s disastrous UK election, so nothing is guaranteed. Establishing a robust strategy to manage currency fluctuations to counteract how markets react to such outcomes is therefore of utmost importance. Businesses can create certainty when markets are turbulent surrounding these elections, which can prevent any financial loss due to currency hits.”


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