EUR/USD Hits Four-Month High On Optimism Over German Defense Spending Deal
EUR/USD hit a four-month high above 1.0900 during European trading hours on Tuesday (3/11). The major currency pair strengthened as the euro (EUR) outperformed its peers. The euro strengthened on hopes that the German Green Party led by Franziska Brantner would support the conclusion of a defense spending deal, which is due to be discussed on Thursday. Hopes for the Greens to agree to an extension of Germany’s borrowing limit increased after positive comments from Franziska Brantner in an interview with Bloomberg on Tuesday during European trading hours.
“Of course we are ready to negotiate,” Green Party co-chair Franziska Brantner said, adding, “The situation in Ukraine is terrible and we really need Europe to accelerate its own defense spending.” The Greens had previously vowed to oppose any restrictions on ‘debt reform’. On Monday, Branter said their party would likely not allow the next Chancellor, Friedrich Merz and Social Democrats (SDP) co-leader Lars Klingbeil, to “abuse Europe’s difficult security situation”.
The common currency has performed strongly for almost two weeks as Germany’s increased spending power by widening the “debt brake” would stimulate an economy that has cracked and contracted in the past two years.
In addition, Germany’s spending plans have forced traders to reassess bets that the European Central Bank (ECB) will cut interest rates twice more this summer. The ECB has already cut its benchmark lending rate twice this year, and traders have fully priced in two more rate cuts amid strong confidence that eurozone inflation will return sustainably to its desired 2% level this year and fears of a slowdown due to potential US tariffs.
Source: FXStreet
