Euro remains capped below 1.1500 amid growing political uncertainty in Germany

• EUR/USD holds recent losses below 1.1500, just above the seven-week low of 1.1456.
• Growing political uncertainty in Germany has offset the impact of lower Oil prices.
• Fed's Goolsbee and ECB's Lagarde's speeches will attract attention later on Monday

The Euro (EUR) consolidates losses against the US Dollar (USD) on Monday, as market concerns about the sharp defeat of German Chancellor Friedrich Merz’s ruling party in state elections in northeastern Germany have offset the positive impact of lower Oil prices. EUR/USD holds below 1.1500 on Monday, with the seven-week low of 1.1454 hit last week, at a short distance.

Merz acknowledged that the result of his centre-right CDU party in the elections in Mecklenburg-Western Pomerania was a “disaster”, although he has vowed to remain in office to complete the economic reforms in progress. The CDU obtained 4.9% of the vote, below the 5% threshold to enter the state parliament, its worst result in postwar Germany. The victory was for the eurosceptic and pro-Kremlin Alternative for Germany (AfD).

These results have offset the positive impact of lower Oil prices, which pose a significant relief for the Eurozone’s net Crude-importing economies. The price of the Brent Oil barrel has dropped to levels close to $98.00, nearly 7% below last week’s highs amid news that Saudi Arabia fixed its East-West pipeline and increased its supply volumes in September.

ING holds to year-end EUR/USD target despite shifting ECB expectations

Analysts at ING explain that they have “kept our EUR/USD profile unchanged, still targeting 1.160 for year-end,” arguing that “EUR and USD front-end swaps – the most relevant for FX – look quite similar.”

ING experts note that they “see only one more hike by both central banks this year and then a prolonged pause; the dovish repricing should be similar in size.” Historically, they add, “that is often associated with a slightly higher EUR/USD as lower USD rates tend to have a positive knock-on effect on global risk sentiment.”

The Federal Reserve (Fed) hiked interest rates last week, as widely expected, but Chairman Kevin Warsh surprised markets with an unequivocal hawkish stance, which boosted hopes of further rate hikes before year-end and provided a significant impulse to the US Dollar.

In the calendar today, Chicago Fed President Austan Gololsbee will speak about monetary policy at the Official Monetary and Financial Institutions Forum (OMFIF) in London. Later on, European Central Bank President Christine Lagarde will take part in a roundtable in Frankfurt. The highlights this week, however, are likely to be the preliminary Purchasing Managers' Index (PMI) figures for September, due on Wednesday.