The euro made slight gains after the opposition’s victory in the German elections, reaching its highest level in a month. Attention is now focused on Friedrich Merz’s ability to quickly form a coalition government and implement the necessary reforms to revive the slowing German economy. Investors believe that forming a stable government will boost market confidence and provide a positive push for the euro.
As coalition negotiations begin in Germany, concerns have emerged regarding the potential modification of the “debt brake” rule, which aims to limit the national budget deficit to a certain percentage of GDP (typically 0.35%). Investors are closely watching whether the upcoming government will ease this rule to stimulate economic growth. Any positive signals in this regard could support the euro, while delays in making decisive decisions may lead to volatility in the European currency.
Meanwhile, the U.S. dollar fell to a two-month low amid growing concerns about weakening economic activity. Recent data indicated that the U.S. economy is struggling to grow, raising investor concerns and prompting them to move away from the dollar. This decline has benefited competing currencies such as the British pound and the Japanese yen, both of which recorded notable gains against the dollar.
This week, investors are awaiting the release of fourth-quarter economic growth estimates and the core personal consumption expenditures (PCE) price index data. Forecasts suggest that any weak economic data could increase concerns about a U.S. slowdown, exerting further pressure on the dollar and driving markets toward safe-haven investments such as gold and other alternative currencies.
