The euro gains on Monday after Germany's conservative party secured victory in the national election. Investors welcomed the outcome, but complex coalition talks lie ahead. The focus now shifts to how quickly the new government can take shape and address economic challenges.
Friedrich Merz is expected to become Germany’s next chancellor. However, his party must negotiate alliances after the far-right Alternative for Germany (AfD) secured a historic second place. Political uncertainty could impact the euro’s long-term strength.
The euro climbed 0.46%, reaching $1.0508. Analysts believe the market is watching closely to see how the new government approaches economic reforms. A fragmented political landscape may slow decision-making, delaying much-needed policy changes.
The dollar weakened on Monday as traders worried about the U.S. economic outlook. Investors are closely monitoring upcoming economic data and Federal Reserve statements for signs of potential rate cuts.
The dollar index fell 0.2% to 106.34. Weak U.S. business activity data released on Friday added to concerns. Many now speculate that slowing growth and potential policy shifts could keep the dollar under pressure.
Sterling remained strong, trading near a two-month high at $1.2659. Meanwhile, the Australian dollar edged up 0.17% to $0.6370, and the New Zealand dollar rose 0.16% to $0.5751.
Falling U.S. Treasury yields also contributed to the dollar’s decline. Growing expectations of Federal Reserve rate cuts have led investors to seek alternatives. Lower real yields tend to reduce demand for the greenback, making other currencies more attractive.
The yen gained strength, rising to 148.85 per dollar. Speculation that the Bank of Japan may introduce another rate hike has supported the Japanese currency.
Later this week, key U.S. economic reports will be released, including the second estimate of fourth-quarter growth and January’s core PCE price index. Any negative surprises could further impact market sentiment and weigh on the dollar.
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Euro gains after election victory for Germany’s conservatives, while the dollar weakens amid U.S. economic concerns.
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