The euro and German stocks rallied on Monday as investors welcomed Germany’s election result that put centrist parties on track to form a coalition, although optimism was tempered by potentially tricky negotiations over economic policy.

The single currency gained 0.3 per cent in early trading in Europe to $1.0489. The currency briefly hit a high for the year during morning trading in Asia, rising as much as 0.7 per cent to $1.0528. “Obviously some relief is showing through in the euro now,” said Tony Sycamore, a market analyst at IG Australia.

The German election may fuel optimism about potential fiscal policy reform, which is expected to revitalise Europe's largest economy. The euro and the DAX could strengthen further amid the projected result.