The euro held steady on Monday after a brief surge following a conservative victory in Germany's election, as the focus shifted to the period of negotiations to form a new government.
The dollar edged up from a two-month low amid concerns over the outlook for US economic growth.
Friedrich Merz is set to become Germany's new Chancellor after his party won Sunday's election as predicted. However, he faces complicated and lengthy coalition talks after the far-right Alternative für Deutschland (AfD) achieved a historic second-place finish in a divisive election.
The euro hit a one-month high of $1.0528 in Asian trade, but later eased to $1.04635, up just 0.03%.
"Given the German election was no major surprise, it would not be surprising if euro/dollar returned to trading levels similar to last Friday," said Jane Foley, chief FX strategist at Rabobank.
The European currency rose 0.4% against the Japanese yen to 156.65 yen, but weakened slightly against the pound at 82.80 pence per euro.
Investors are now focusing on how quickly Merz's party can form a coalition government and implement reforms to revive the sluggish economy.
"The coalition negotiations period is now starting, and we may see sensitivity in the euro on this issue, especially regarding debt rules," said Francesco Pesole, forex strategist at ING.
Markets are watching whether Germany will relax the 'debt' rule in its constitution, which limits budget deficits to just 0.35% of GDP.
The issue has been made more pressing by the threat of US tariffs that could hit the German economy and the Trump administration's demands that NATO members, including Germany, increase their defense spending.
In broader markets, the US dollar touched its lowest level in more than two months before stabilizing ahead of a busy week of US economic data and speeches from Federal Reserve officials.
The British pound rose to a two-month high of $1.2690 on the back of the dollar's weakness, before stabilizing at $1.2636.
The Japanese yen also hit 148.85 against the dollar, its strongest since early December, but later fell 0.3% to 149.745 per dollar.
The U.S. dollar index, which measures the currency's performance against a basket of six major currencies, was at 106.67 after touching a two-month low of 106.12 earlier.
The dollar has fallen more than 3% from its peak in January, as traders have come to realize that the start of Donald Trump's second term has been more rhetoric than concrete action on tariffs, reducing appetite for new dollar holdings.
Data on Friday showed U.S. business activity nearly ground to a halt in February, another in a series of surveys that show businesses and consumers are increasingly uneasy with the Trump administration's policies.
This week, investors will be looking at the second estimate of U.S. fourth-quarter growth data and the core PCE price index for January.
