The euro took German Chancellor Gerhard Schroeder's narrow election win in its stride today but German government bond yields fell on the prospect of continued poor growth in the euro zone's biggest economy.
Mr Schroeder's victory with a sharply reduced majority may leave him with a centre-left government too fragile for effective reform of Europe's faltering economic powerhouse, an outlook unlikely to help the euro in the longer term.
"The feeling is the German election is a slight negative for the euro," said Mr Rob Hayward, senior currency strategist at ABN Amro.
"We shouldn't get carried away as it's not a total surprise but it cements the idea that the reform process has stalled in Germany," he said.
However, taking heart that a worst-case scenario, a hung parliament with no grouping of parties having a majority, had been avoided, the euro was steady at $0.9830 by the European midsession - although down from a two-week high set on Friday.
With the status quo effectively maintained, the single currency was also broadly steady against other major currencies such as sterling and the Swiss franc.