By Saumya Vaishampayan and Kenan Machado 

The euro slid while the U.S. dollar rose Monday after elections in Germany and New Zealand set the stage for periods of political uncertainty in both countries.

Chancellor Angela Merkel's conservative alliance won Sunday's German election, essentially guaranteeing her a fourth term as chancellor, though a strong showing for the nationalist Alternative for Germany party suggests Europe's largest economy could face political turbulence. The AfD party is anti-immigrant and wants to weaken European integration.

"The waning support for Merkel's coalition partner...combined with the rise in popularity of the far-right Alternative for Germany means that the process of building a coalition could take months and that the resulting agreement will be a much weaker government in the eurozone's largest economy," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange.

The euro fell 0.6% to $1.1878, though it remains up about 13% for the year.

New Zealand's general election Sunday failed to deliver a clear result. Party leaders now have to forge alliances to achieve a ruling coalition, which could result in a either another term for the current center-right government, or a win for the center-left Labour Party. The New Zealand dollar dropped 1% against the U.S. dollar.

"There is a sense that we are entering a period of political uncertainty and that is never a good thing, at least for the currencies of the countries involved," said Ray Attrill, head of foreign-exchange strategy at National Australia Bank.

Others noted, however, that market moves sparked by recent political and other surprises have been short-lived.

"Given the relatively muted reaction to the many big recent shocks, we don't expect much in the way of volatility as a result of this," Paul Hatfield, global chief investment officer at Alcentra, which is part of BNY Mellon Investment Management, wrote in a note.

The WSJ Dollar Index, which measures the dollar against 16 other currencies, rose 0.3% to 85.81

The dollar has strengthened in recent days as investors grow more optimistic on the prospect for U.S. interest-rate increases. Last week, the Federal Reserve signaled it still expects to raise rates against this year and three times next year despite weakness in inflation.

Investors are now pricing in a 73% chance that the Fed raises rates again this year, up from 58% a week ago. Expectations that U.S. rates will rise help support the dollar by making U.S. assets more attractive to yield-seeking investors.

In other Monday trading, the British pound rose 0.2% against the dollar. Moody's Investors Service cut the U.K.'s rating on Friday, citing the likelihood of a Brexit-linked economic slowdown. Separately, British Prime Minister Theresa May said Friday the U.K. would try to keep its current trade terms with the European Union for two years after its planned 2019 exit.

The dollar slipped 0.1% against the Korean won, though it has gained 0.6% so far in September. Tensions between the U.S. and North Korea escalated further over the weekend as North Korea's foreign minister warned that a rocket attack on the U.S. mainland was inevitable. Also, U.S. warplanes flew off the east coast of North Korea.

--Chelsey Dulaney contributed to this article.

Write to Saumya Vaishampayan at saumya.vaishampayan@wsj.com and Kenan Machado at kenan.machado@wsj.com

(END) Dow Jones Newswires

September 25, 2017 10:55 ET (14:55 GMT)