On Monday, the euro rose 0.58% against the US dollar to 1.0518, mainly boosted by the results of the German elections. The largest opposition party in Germany, the conservatives, won the general election on Sunday, and their leader Friedrich Merz is expected to become the next Chancellor. However, due to the record high vote share of the far right party, the Alternative for Germany (AfD), the political landscape of Germany is becoming increasingly fragmented, and future coalition government negotiations may be exceptionally complex.

The fragmentation of the German political landscape will make the upcoming coalition government negotiations exceptionally complex. "- Carsten Brzeski, Global Macro Research Director at ING

The market is concerned about whether the conservative faction led by Mertz can quickly form a coalition government and promote economic reforms. Analysts believe that the German economy urgently needs major reforms, but considering the current political environment, the government may only be able to take some short-term stimulus measures in the future, such as tax cuts, minor reforms, and increasing some investment, which will have limited boost to the overall economy.

At the same time, the US dollar continues to decline, and market concerns about the outlook for the US economy have intensified.

The US dollar index fell 0.39% to 106.24, continuing a decline of over 3% since its January high. Due to the market's perception that the Trump administration's trade policies are more verbal threats, the enthusiasm for buying the US dollar has weakened. In addition, the yield of US treasury bond bonds declined, and the market increased its bet on the US Federal Reserve's interest rate cut this year, further suppressing the trend of the US dollar.

The poor economic data in the United States has strengthened market expectations for the Federal Reserve's interest rate cuts.

The data released last Friday showed that business activity in the United States almost stagnated in February, further indicating that business and consumer confidence in the economic outlook is declining. The market expects the US fourth quarter GDP correction data released this week and the January core PCE price index to provide more guidance for the Federal Reserve's monetary policy.

This week, the market may react strongly to any economic data, especially against the backdrop of heightened concerns about US economic growth, and the market's response to the data is more inclined towards negative interpretation. "- Chris Weston, Research Director at Pepperstone

Editor's viewpoint:

The recent decline of the US dollar is mainly influenced by the slowdown in US economic growth, the increasing expectation of interest rate cuts by the Federal Reserve, and the strengthening of the euro driven by political factors in Germany. However, whether the US dollar will continue to weaken still depends on several key factors in the future:

Firstly, the US economic data and the stance of the Federal Reserve are crucial. If the GDP and core PCE data released this week are weaker than expected, the market's bet on the Fed's interest rate cut may further intensify, thereby dragging down the US dollar. But if the data shows strong performance, it may reverse the current trend of a weak US dollar.

Secondly, the progress of the formation of the German coalition government may affect the trend of the euro. Although the election results have boosted the euro, if the coalition government's negotiations are delayed or policies are unclear, the rise of the euro may be limited.

Finally, the divergence of global interest rate policies will affect the trend of the US dollar. If the Federal Reserve continues to send dovish signals while other major central banks (such as the Bank of Japan) adopt more hawkish policies, the US dollar may continue to be under pressure. But if global economic growth slows down and the Federal Reserve cuts interest rates less than expected, the US dollar may strengthen again.

Overall, the US dollar may continue to be under pressure in the short term, but the market still needs to pay attention to changes in future economic data and policy signals to determine whether the US dollar will further weaken.