Germany will hold elections on Sunday, February 23, with the first exit polls released at 6 pm CET. Initial results will be available 30 minutes later, followed by ongoing updates.
The conservative CDU/CSU leads in the polls with 31%, while the far-right AfD has 21%, the Social Democrats hold 15%, and the Greens have 13%. A coalition is necessary, which may take weeks to finalise due to the stable polling landscape.
A potential two-party coalition could involve the CDU/CSU with either the SPD or Greens. If confirmed, Friedrich Merz of CDU/CSU will take over as Chancellor from Olaf Scholz.
Attention will be focused on the AfD’s performance against their 21% poll prediction. Although they lack a coalition option, a strong result could encourage other parties to collaborate on economic stimulus measures and reform.
Increased defence spending is anticipated as a major priority for the new government. While fiscal changes could positively impact the economy, growth expectations remain low for the year.
Euro trading on Monday is expected to be stable, with potential relief trades following the election.
Volatility may initially be subdued in currency markets as the vote unfolds, but that does not mean traders should overlook potential shifts in sentiment once coalition discussions begin. If the CDU/CSU secures a strong mandate, we could see initial optimism in bond and equity markets, particularly if coalition negotiations with the SPD or Greens appear orderly. However, uncertainty will remain a feature over the coming weeks as policymakers work to finalise a governing agreement.
Friedrich’s prospects of replacing Olaf hinge on expected deal-making, which could take considerable time given the polling margins. Markets will be watching for any indications of policy direction, particularly regarding fiscal discipline or tax policies that could impact investor sentiment. While any strategy changes will take months to implement, early signals from party leaders could shape near-term positioning.
Traders will also be monitoring how the AfD’s final result compares to polling projections. If support exceeds expectations, it may increase speculation about broader shifts in voter sentiment, which could push policymakers to adjust their stance on economic relief measures. The extent to which other parties react could influence corporate confidence and broader fiscal planning.
Defence investment, already a topic of heightened discussion, is set to be a key theme in post-election negotiations. Any clarity on spending plans may have implications for industries tied to security and infrastructure, potentially affecting equity sectors linked to government procurement. The challenge for policymakers will be balancing these priorities with efforts to maintain budgetary discipline.
Although euro movements are likely to be measured at first, a smooth political transition could offer reassurance to investors. Early signs of stability in coalition negotiations may increase appetite for riskier assets, though any setbacks in forming a government could dampen sentiment. The extent of relief trades, if any, will depend on whether major policy concerns are addressed swiftly.
Economic expectations remain cautious for the year, meaning any overly positive market reaction could be short-lived unless reforms gain traction. In the days following the election, clarity from party leaders on fiscal plans and investment priorities will shape how traders navigate the shifting conditions.
