THE euro extended its gains after the European Central Bank cut interest rates as expected on Thursday (Mar 6) and kept the door ajar to more, even as a looming trade war with the US and plans to boost military spending drive Europe’s biggest economic policy upheaval in decades.
The euro was last up 0.25 per cent at US$1.0815, having traded at US$1.0797 earlier, while government bond yields edged up.
Germany’s two-year bond yield traded at 2.25 per cent, versus 2.22 per cent just before the decision, while Italian bond yields edged up. European stocks were last down 0.6 per cent.
The euro and European bond yields have surged this week on strong signals that Germany is readying to ramp up spending on defence and infrastructure.
The ECB also cut its economic growth expectations for the eurozone once more and raised its projection for inflation this year, even as it predicted price growth back at target in 2026.
The dollar index, which measures the greenback against six peers, is on a four-day losing streak and wallowed at its lowest since Nov 6, when US President Donald Trump won the election, as worries of a US slowdown lingered amid trade tensions.
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“It is hard to step into the bullish EUR momentum and call for a pause to the rally,” Barclays analysts said in a note.
“It is clear that in the case of a deepening US slowdown, ongoing good news from Europe and noisy US tariff policy could add fuel to the fire,” they added.
Trump’s administration, which has slapped tariffs on Canada, Mexico and China, gave a one-month reprieve on auto import levies to its nearest neighbours, again showing how rapidly the trade landscape can shift.
The US currency rose 0.15 per cent to C$1.4366 and was up 0.3 per cent at 20.47 Mexican pesos.
“US trade policy remains the biggest uncertainty for the markets,” said Kyle Rodda, senior financial markets analyst at Capital.com.
Rees said that the market is too worried about US growth, when the “hard data” is not even out yet. US nonfarm payrolls data is due to be released on Friday.
Barclays analysts said should US data stabilise, “the bulk of the EUR rally” may be over.
The dollar fell 0.7 per cent to 147.9 yen. Japan’s largest labour union group Rengo said on Thursday its member unions were seeking an average wage hike of 6.09 per cent for this year.
“We do not expect any upswing in wage agreement to be substantially large enough to warrant an earlier rate hike by the Bank of Japan,” Goldman Sachs analysts said in a note.
The US currency edged up 0.2 per cent to 7.2345 yuan in the official market, but that was after falling 0.7 per cent over the previous two sessions.
Beijing began its week-long annual parliamentary meeting of the National People’s Congress on Wednesday by signalling greater efforts to boost consumption to help protect economic growth at a time of heightened trade tensions with the US.
The Swedish krona strengthened on the dollar and euro after Sweden’s headline inflation surged, signalling an end to rate cut prospects in the near term.
The krona hit its highest since December 2022 at 10.994 per euro.
The British pound weakened against the euro as traders continued to pile on the common currency following Germany’s proposed fiscal stimulus. REUTERS
