EUR/USD has continued to trade at just above the 1.1100 level after correcting modestly lower towards the end of last week. Economists at MUFG analyze the impact of the main event over the weekend, the general election in Spain.

Spain election results have limited impact on Euro performance

The election results have heightened political uncertainty in Spain in the near term after the right and left both failed to secure a clear path to forming a government even though the opposition People’s Party (PP) won the most seats in parliament. With all of the votes counted, the PP had won 136 seats compared to 122 seats for the Socialists. But none of the most probable coalitions will be sufficient for the PP or the Socialists to secure the 176 seats required in parliament for a majority. 

The PP is expected to have the first go at forming a government. If neither party is able to secure sufficient support of Congress then another election could be called later this year.

Despite the heightened political uncertainty, the election results are not expected to alter expectations that Spain’s economy to outperform other major Eurozone economies this year. 

If no government is formed and new elections are required, previously-agreed fiscal policies will be rolled over and remain highly accommodative.