Euro Rallies as Conservatives Win in Germany

• The euro climbed 0.46% to $1.0508 after Friedrich Merz’s conservative party secured victory in Germany’s national election.
• However, markets remain cautious as coalition negotiations could be long and complex, especially with the far-right AfD securing a historic second place.
• Investors are focused on how quickly a new government can form and implement economic reforms to address Germany’s slowing economy.

Dollar Weakens Amid Growth Concerns & Rate Cut Bets

• The U.S. dollar index fell 0.2% to 106.34, extending losses as concerns over economic slowdown and potential Fed rate cuts weighed on sentiment.
• U.S. Treasury yields dropped, reflecting increasing bets that the Fed may cut rates sooner than expected due to weak economic data.
• Business activity in the U.S. nearly stalled in February, raising fears that Trump administration policies are dampening confidence.

Key Events to Watch This Week

• U.S. Q4 GDP Second Estimate
• January Core PCE Price Index (Fed’s preferred inflation gauge)
• Speeches from multiple Federal Reserve officials

What’s Next?

• Market participants remain focused on political developments in Germany and upcoming U.S. economic data.
• While the euro has strengthened on election results, uncertainties around coalition negotiations could impact sentiment in the coming weeks.