(Bloomberg) -- Germany’s stock index futures and the euro both rallied in Asian trading after the country’s opposition leader Friedrich Merz won Sunday’s federal election, matching opinion polls and paving the way for a pivot to increased spending.

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Contracts on the DAX Index climbed as much as 1.5% on Monday, erasing a small early loss amid relatively thin volumes. The euro strengthened against nearly all its Group-of-10 peers, rising as much as 0.7% against the dollar.

Market participants anticipate Merz’s government will cease an era of tight fiscal policy in order to bolster an economy that was once Europe’s growth engine. The new regime’s policy decisions are seen as crucial as Europe’s largest economy grapples with stagnant growth, Russia’s war in Ukraine and US President Donald Trump threatening a global trade war.

“Key implications of the election outcome as it stands is political stability and more fiscal spending, which would likely be welcomed by markets,” said Wolf von Rotberg, an equity strategist at Bank J. Safra Sarasin.

The euro’s gains were at least partly driven by expectations Merz won’t take too long to form a government, which wasn’t the consensus among currency traders ahead of the vote.

“EUR/USD should trade back up towards 1.06 if more signs emerge that Merz can form a two-way coalition,” said David Forrester, senior foreign-exchange strategist at Credit Agricole CIB Singapore Branch.

The Bloomberg Dollar Spot Index dropped 0.3% due to the strength in euro and disappointing US economic data last week. That helped to fuel gains in Asian currencies, including the Chinese yuan, Australian dollar and South Korean won.

Futures on 30-year German government bonds edged about 50 ticks lower.

--With assistance from David Finnerty.

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