Euro hits five-month high before German vote on massive spending surge

The euro hit its highest levels in more than five months against the dollar on Tuesday, as the German parliament was set to vote on a massive surge in borrowing that could boost growth across the euro area’s largest economy and the wider region, Reuters reported.

Meanwhile, the greenback hit a two-week high against the yen as investors await the outcome of Wednesday’s policy meetings from the Federal Reserve and the Bank of Japan.

The market will also be watching developments on a possible Russia-Ukraine peace deal – which would be positive for the single currency – as U.S. President Donald Trump said he would speak to Russia’s Vladimir Putin on Tuesday.

German investor morale data will be in focus, with the expectations component seen jumping on the back of recent developments, even if still mired in negative territory.

A vote in the lower house of the German parliament is expected around midday after a morning debate. Should the legislation pass the Bundestag lower house, it still has to go to the Bundesrat upper house. The main hurdle to passage fell on Monday, when the Bavarian Free Voters agreed to back the plans.

The euro was up 0.25% at $1.0945, after hitting $1.0954, its highest level since October 10.

“The prospect of wider deficits in Europe has had the effect of raising Europe’s sovereign yields this month and sucking flows into the euro and the British pound,” said Thierry Wizman, global forex and rates strategist at Macquarie.

“It’s indicative of the fading of ‘American exceptionalism’ that is at the core of our outlook for forex in the medium term,” he added, recalling the recent rise of the euro despite the flight to safety evident in the small stock sell-off.

SLOWDOWN FEARS

The dollar index, which measures the currency against six peers, was down 0.12% at 103.28. It hit 103.21 last week, its lowest level since October 15.

It has dropped around 6% from the more than two-year peak of 110.17 hit in mid-January.

Fears that U.S. President Donald Trump’s aggressive tariff policies could trigger a broader economic slowdown have weakened the greenback amid a string of soggy sentiment surveys.

The dollar was at 149.76 against the Japanese currency, after reaching 149.88, its highest level since March 5. It hit 146.52 last week, its lowest level since October 4.

Analysts expect the Fed to hold its monetary policy stance amid persistent inflation concerns.

New economic projections from Fed officials this week will provide the most tangible evidence yet of how U.S. central bankers view the likely impact of Trump administration policies.