For the fourth day in a row, the euro has been going up against the US dollar. It has gained 0.2% and reached 1.08205, which is its best level since November of last year.
People are optimistic about the future of the region’s economies, especially Germany, which has the biggest economy and plans to spend a lot more on security and infrastructure. This has helped the euro rise. To make this happen, the debt rules will have to be changed to allow for more bond issuance. This will cause bond yields to rise sharply, which will also help the euro’s gains.
Friedrich Merz, who is likely to become the next chancellor of Germany, said that the new government will set up a 500-billion-euro fund to invest in infrastructure.
As the movement to change Germany’s public budgets and speed up spending grows, it gives people hope that Germany’s economy can grow again and boosts trust in the country’s ability to do so, which may help the euro’s rebound. A lot of people were worried about the economy because of bad news and polls in Germany and the eurozone. This was one of the main things that kept the single currency falling.
The big rise in bond yields means that it might cost more to borrow money. The yield on a 10-year German bond has hit almost 3%, which is the highest amount since October 2023. This possible rise in the cost of getting money could make the plan to spend more expensive and put a strain on the economy.
It’s still not clear what will happen with the plan to raise spending and change the laws about debt. It needs a change to the law, which must be passed by the German government. Their time ends this month. Reuters says that the new parliament has a blocking minority made up of far-left and far-right parties that don’t agree with Merz’s plan. It’s also not clear yet what the alliances will look like in the next government.
Not passing these changes along with a promise to spend more on defence could make the economy worse by raising taxes and cutting back on government support for other programs.
Besides that, forex trading, the euro’s gains are also due to the weakening of the dollar due to a series of bad signs from the US economy, which is mostly caused by doubt about what will happen as the trade war gets worse. Recent polls from both The Conference Board and S&P Global show that this has made people less confident in their finances and in doing business.
The very bad news in ADP’s report on the change in non-farm jobs has made economic worries even worse. Nela Richardson, chief economist at ADP, says that the doubt about Donald Trump’s policies and the drop in consumer spending have caused people to lose their jobs and hire people more slowly.
Today, the market is looking ahead to the European Central Bank’s interest rate decision, with predictions of a 25bp cut. The news statement and speech that come after the reveal will get the most attention. If the central bank talks less strongly about the future of monetary policy, it could hurt the euro’s recent gains.
These mixed causes and the lack of full certainty around them could leave the euro open to sharp instability, especially after the unusual rises we have seen this week.
Lakisha Davis
Lakisha Davis is a tech enthusiast with a passion for innovation and digital transformation. With her extensive knowledge in software development and a keen interest in emerging tech trends, Lakisha strives to make technology accessible and understandable to everyone.