2017.09.2422:15:00UTC+00Euro Slides on Political Uncertainty

The euro fell as Angela Merkel's win as German Chancellor was tainted by a worse-than-anticipated result that leaves her with challenging coalition talks.

Despite Merkel winning her fourth term in office, the euro ended a two-day rally as her current coalition party, the Social Democratic Party, excluded itself from an agreement with Merkel's Christian Democratic Union, making the establishment of a united government more difficult. Merkel will need to reach a consensus with pro-business Free Democratic Party and Green Party in order to form a coalition, a development that may need months.

The common currency fell 0.2 percent at $1.1934, increasing the gap between a two-and-a-half year high of $1.2092 hit on September 8, when the ECB policy meeting lifted hopes of currency bulls that the central bank would start unwinding its massive stimulus program.

While majority of currency analysts see the euro closing the year above the $1.20 mark after its 13 percent rally so far this year, lengthy negotiations to establish government could affect market sentiment. The FDP opposes further EU integration, while the far-right anti-immigrant Alternative for Germany party entering the parliament could put nationalist pressure on Merkel.