市場洞察

Euro Strengthens as Germany's Conservatives Win, Dollar Eases

Amos Simanungkalit · 24 Feb 2025133K 閱讀

Image Credit: Reuters

The euro strengthened on Monday after Germany's opposition conservatives secured a victory in the national election, as expected. Meanwhile, the dollar continued its downward trend, fueled by growing concerns about the U.S. economic growth outlook.

Friedrich Merz, leader of Germany's conservative party, is set to become the next chancellor after his party’s success in Sunday’s election. However, he faces complex coalition negotiations, as the far-right Alternative for Germany (AfD) achieved a historic second-place finish in a fragmented vote.

The euro gained further momentum, rising 0.46% to $1.0508, as investors focused on how quickly Merz’s party could form a coalition government to address Germany's struggling economy. Carsten Brzeski from ING Research highlighted that the fragmented political landscape in Germany will make coalition talks challenging, with limited potential for substantial economic reforms.

Meanwhile, the dollar continued to weaken ahead of a busy week of U.S. economic data and Federal Reserve speeches. Monday’s trading was light, with Japanese markets closed for a public holiday.

The British pound hovered near a two-month high at $1.2659, while the Australian dollar rose 0.17% to $0.6370, and the New Zealand dollar gained 0.16% to $0.5751. The dollar index fell 0.2% to 106.34.

The dollar has fallen more than 3% since its January peak, as traders reassessed the impact of Donald Trump's second term, particularly in relation to tariffs, and were less inclined to hold onto the greenback. U.S. Treasury yields also dropped, with expectations of more interest rate cuts by the Federal Reserve, exacerbating concerns about the U.S. economy.

On Friday, data revealed that U.S. business activity nearly stalled in February, adding to growing concerns over the economic outlook. Later this week, investors will await revised fourth-quarter growth data and the January core PCE price index.

Chris Weston from Pepperstone noted that market reactions could be highly sensitive to any disappointing economic data. The decline in U.S. Treasury yields, particularly in real terms, has put further pressure on the dollar against the yen, as Japanese yields have risen due to speculation about another rate hike by the Bank of Japan. As a result, the yen strengthened to its highest level in over two months, reaching 148.85 per dollar.