The euro rebounded toward $1.09, hovering near its strongest level since early November, as investors welcomed news that Germany had agreed on a debt overhaul and a significant increase in state spending.
Euro gains on German historic debt deal
Friedrich Merz, the soon-to-be chancellor, reached an agreement with the Green and Social Democrat parties on Friday, ahead of a parliamentary vote next week on reforming borrowing rules. The proposed changes are expected to provide fiscal relief and support key infrastructure projects, potentially boosting economic growth in the eurozone’s largest economy.
Meanwhile, investors are also awaiting Fitch’s decision on France’s credit rating, which is set to be released after markets close on Friday. A downgrade could put additional pressure on French bonds and add to concerns over the country’s fiscal sustainability, particularly as it grapples with rising public debt and sluggish economic growth.
Escalating trade tensions continued to weigh on markets
Elsewhere, escalating trade tensions continued to weigh on markets after President Trump threatened to impose a 200% tariff on all wines, champagnes, and other alcoholic beverages from the EU in response to the bloc’s retaliatory tax on U.S. whiskey. The announcement has raised fears of a renewed transatlantic trade war, which could impact European exports and weigh on investor sentiment. Businesses on both sides of the Atlantic have urged negotiations to prevent further economic disruptions, but uncertainty remains high as rhetoric escalates.
Positive news on Ukraine front
On the Ukraine war front, Trump announced that he had a “very good and productive” phone call with Russian President Vladimir Putin, claiming there is “a very good chance” the war could finally come to an end. However, skepticism remains among European leaders, with many questioning whether Russia is truly committed to a peace deal or simply seeking to ease international sanctions. The euro’s strength may be tested in the coming days as investors assess geopolitical risks, economic policy developments, and the potential fallout from ongoing trade disputes.
