Dollar eases vs euro after German vote on a spending surge

NEW YORK – The dollar eased against the euro on Tuesday as Germany’s parliament approved plans for a massive spending surge on Tuesday and as the Federal Reserve kicked off its March policy meeting that could offer clues to the path of US interest rates.

The euro was 0.2% higher at USD 1.0945, after hitting USD 1.0954 earlier in the session, its highest since October 10.

The German parliament’s approval of plans for a massive spending surge throws off decades of fiscal conservatism in hopes of reviving economic growth and scaling up military spending for a new era of European collective defense.

“Germany, and by extension the eurozone, getting their fiscal act together is not only long overdue, but supports the bull case for the common currency over the medium-term,” Michael Brown, senior research strategist at Pepperstone, said.

The euro also found support earlier after data showed German investor morale improved more than expected in March.

More broadly, currency market moves were largely muted on Tuesday as investors awaited policy announcements from major central banks, including from the Federal Reserve on Wednesday.

While analysts expect the Fed to hold its monetary policy stance amid persistent inflation concerns, investors will be looking to new economic projections from Fed officials for evidence of how US central bankers view the likely impact of Trump administration policies.

“The SEP (Summary of Economic Projections) will be the most interesting aspect, I imagine, with near-term inflation expectations likely nudged higher, and growth projections marked down a touch, though conviction behind those forecasts is going to be lacking, amid the ever-changing macro outlook,” Brown said.

The greenback hit a two-week high against the yen before paring gains to trade about unchanged on the day at 149.165 yen, ahead of Wednesday’s policy decision by the Bank of Japan.

BOJ policymakers are expected to discuss just how much of a risk the escalating US trade war poses to Japan’s economy.

“We would expect this adjustment in the pricing of the terminal rate to be maintained following the BoJ meeting,” said Lee Hardman, senior currency analyst at MUFG, referring to market expectations that rose from around 0.90% at the end of 2024 to close to 1.20%.

Elsewhere, the Australian dollar slipped 0.4% to USD 0.6358 after rising to its highest in about a month on Monday.

Bitcoin, the world’s largest cryptocurrency by market cap, was down 2.5% at USD 81,922.

(Reporting by Saqib Iqbal Ahmed; Additional reporting by Stefano Rebaudo; Editing by Bernadette Baum and Nick Zieminski)