Euro gains after Germany's conservatives win the national election, USD drops over US growth worries

The euro firmed on Monday after Germany's opposition conservatives won the national election as expected, while the dollar extended its decline on mounting worries over the growth outlook of the U.S. economy. Friedrich Merz was set to become Germany's next chancellor after his party emerged victorious in Sunday's election, though he faces complex and lengthy coalition negotiations after the far-right Alternative for Germany (AfD) surged to a historic second place in a fractured vote.

The euro extended gains from early in the session to last trade 0.46% higher at $1.0508. Investors' focus is now on how quickly Merz's party can form a coalition government to bring about much-needed change to a frail economy. "The fragmentation of Germany's political landscape will make the upcoming coalition negotiations very complicated," said Carsten Brzeski, global head of macro for ING Research.