Euro Rises After German Conservatives' Victory; Dollar Falls to Two-Month Low

Euro Rises After German Conservatives' Victory; Dollar Falls to Two-Month Low

According to Investing, on Monday, the euro surged to its highest level in a month. This increase followed the victory of Germany's conservative party in the country's general elections. Meanwhile, the U.S. dollar weakened to its lowest level in two months, driven by concerns over slowing economic growth.

German Conservatives' Victory and Market Reaction

The victory of Friedrich Merz, leader of Germany’s conservative party, in the national elections means he is now poised to take on the chancellorship. However, Merz faces complex challenges in forming a coalition government, as the Alternative for Germany (AfD) party secured a historic second place with an unprecedented number of votes.

Following these developments, the euro rose to $1.0528 in global markets, marking its highest level in a month. It later traded 0.5% higher at $1.0512. The market appears to be closely monitoring the formation of Germany’s new government. According to Carsten Brzeski, Head of Macro Research at ING Research, “Coalition negotiations in Germany will be highly complex due to deep political divides. This situation could prolong the process of economic reforms.”

U.S. Dollar Plunges Amid Economic Uncertainty

The U.S. dollar experienced a sharp decline ahead of the release of key economic data. The Dollar Index, which measures the currency's value against a basket of major currencies, fell to 106.12, marking its lowest level in two months.

Reasons Behind the Dollar's Weakness:

Lack of Investor Confidence: Investors showed little enthusiasm for the dollar, partly due to the limited impact of trade policies in Donald Trump’s second presidential term.

Declining U.S. Treasury Yields: The likelihood of a Federal Reserve rate cut later this year has driven Treasury yields lower, weighing on the dollar.

Weak Economic Data: Recent reports indicate that business activity in the U.S. nearly stalled in February, raising concerns about economic momentum.

Additionally, analysts atPepperstone highlighted growing worries over U.S. economic growth, noting that the market is likely to react sharply to upcoming economic data releases.

Major Currencies React to German Conservatives' Victory

Alongside the euro, the British pound surged to a two-month high of $1.2690, while the Japanese yen climbed to< 148.85 /strong>against the U.S. dollar, its strongest level since early December.

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EUR/USD – GBP/USD – USD/JPY

Volatility in these pairs is expected to increase in the near future. For seamless monitoring of all major currency pairs in one place, you can use the Trendo trading platform to track live charts and capitalize on market fluctuations.

EUR/USD Analysis on Trendo

EUR/USD Analysis by Trendo Broker Experts

The victory of Germany’s conservative party has strengthened the euro, but complex coalition negotiations could impact the country's economic trajectory. Meanwhile, the U.S. dollar has faced a sharp decline due to concerns over slowing economic growth and the potential for a Federal Reserve rate cut. As a result of these developments, the EUR/USD chart has now reached a key resistance zone between $1.0503 – $1.0545, an important historical level.