Euro Gains after German Fiscal Deal Raises Hopes of Reviving Growth

Global Currency Markets

Euro Rises as German Parties Agree on Fiscal Deal

The euro rose on Friday after German parties agreed on a fiscal deal that could boost defence spending and revive growth in Europe’s largest economy. The deal will likely be approved by the outgoing parliament and includes a 500-billion-euro fund for infrastructure and sweeping changes to borrowing rules.

Dollar Weakened Against Euro and Swiss Franc, Rises Against Yen

The dollar weakened against the euro but rose against the Swiss franc and the yen, extending gains as data showed inflation expectations picked up, suggesting the US Federal Reserve will likely be patient in cutting interest rates. The dollar strengthened 0.35 per cent to 0.885 Swiss franc and up 0.58 per cent for the week. Against the Japanese yen, the dollar strengthened 0.48 per cent to 148.50 and was up 0.30 per cent this week.

German Fiscal Reform to Pass, ECB to Hold Rates Steady

Dominic Bunning, head of G10 FX Strategy at Nomura, said he sees upside for the euro especially against the Swiss franc and British pound on prospects of German fiscal spending. "We expect the German fiscal reform to pass next week and the ECB holding rates steady in April, a more hawkish outcome than is currently priced in," Bunning said.

Market Analysis

The euro rose 0.27 per cent to US$1.087625, against the pound, the euro gained 0.48 per cent to 84.105 pence and rose 0.62 per cent to 0.96260 against the Swiss franc. It is on track for a second straight week of gains against the dollar, pound, and the franc.

Consumer Sentiment Plunges, Inflation Expectations Soar

The University of Michigan survey on Friday showed US consumer sentiment plunged in March but inflation expectations soared on worries about the impact of President Donald Trump’s sweeping tariffs. Consumers’ 12-month inflation expectations jumped to 4.9 from 4.3 per cent in February.

Japanese Companies to Raise Wages by 5.46%

Japanese companies agreed to raise wages by 5.46 per cent this year, topping both last year’s preliminary and final figures and likely marking the highest pay hike in 34 years.

Bank of Japan to Stand Pat

The data is one important input into the Bank of Japan’s decision-making. Economists and markets see the central bank standing pat at its meeting next week as policymakers gauge global risks.

Pound Weakened After British Economy Contracts

The pound weakened after the British economy unexpectedly contracted by 0.1 per cent in January, but stayed not far below its four-month peak of $1.2990 hit on Wednesday. Sterling weakened 0.15 per cent to US$1.29310 but was on track for the second straight week of gains.

Conclusion

Global currency markets ended the week on a volatile note, with the euro rising on news of a German fiscal deal, the dollar weakening against the euro and Swiss franc, and the pound weakening after a contraction in the British economy.

Frequently Asked Questions

Q: What is the impact of the German fiscal deal on the euro?
A: The deal is expected to boost defence spending and revive growth in Europe’s largest economy, leading to gains in the euro.

Q: What is the outlook for the dollar?
A: The dollar is expected to weaken against the euro and Swiss franc, but rise against the yen, as inflation expectations rise and the Federal Reserve is likely to be patient in cutting interest rates.

Q: What is the impact of the Bank of Japan’s decision on the yen?
A: The Bank of Japan is expected to stand pat at its meeting next week, leading to a stable yen.

Q: What is the outlook for the pound?
A: The pound is expected to weaken after a contraction in the British economy, but stay near its four-month peak.