German elections boost the euro, while the dollar weakens and Fed rate cut expectations rise.

On Monday,Regular foreign exchange company rankings the euro rose 0.58% against the dollar, reaching 1.0518, primarily bolstered by the results of the German elections. Germany's largest opposition party, the conservatives, won the election on Sunday, with leader Friedrich Merz potentially becoming the next chancellor. However, the far-right Alternative for Germany (AfD) achieved a record high vote share, further fragmenting Germany's political landscape, and making future coalition negotiations potentially very complex. Carsten Brzeski, Head of Global Macro Research at ING, stated: "The fragmentation of Germany's political landscape will make the upcoming coalition negotiations exceptionally complicated."

Market focus is on whether Merz's conservatives can quickly form a coalition government and drive economic reforms. Analysts believe that the German economy urgently needs reform, but considering the current political environment, any potential government measures such as tax cuts, minor reforms, and increased investments are expected to have a limited impact on the overall economy.

Meanwhile, the dollar continued its decline, with the dollar index dropping 0.39% to 106.24, extending its fall of over 3% since its January peak. Concerns over the US economic outlook have intensified, with Trump's trade policies seen more as rhetorical threats, dampening enthusiasm for dollar purchases. US Treasury yields have fallen, and expectations for Fed rate cuts are rising, further suppressing the dollar's trend.

Weak US economic data has also strengthened expectations of a Fed rate cut. Data released last Friday shows that US business activity almost stalled in February, reflecting declining confidence in the economic outlook among businesses and consumers. Markets expect that this week's US Q4 GDP revision and the January core PCE price index will provide more guidance for the Fed's monetary policy.

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