By Chibuike Oguh and Yadarisa Shabong
NEW YORK (Reuters) -The euro rose on Friday after German parties agreed on a fiscal deal that could boost defence spending and revive growth in Europe’s largest economy.
The dollar weakened against the euro but rose against the Swiss franc and the yen, underpinned by the likelihood the U.S. government will avert a shutdown over the weekend, extending gains as data showed inflation expectations picked up, suggesting the Federal Reserve will likely be patient in cutting interest rates.
German Chancellor-in-waiting Friedrich Merz announced he had secured the crucial backing of the Greens for a massive increase in state borrowing.
The deal will likely be approved by the outgoing parliament next week. It includes a 500 billion euro ($544.30 billion) fund for infrastructure and sweeping changes to borrowing rules.
Dominic Bunning, head of G10 FX Strategy at Nomura, said he sees upside for the euro especially against the Swiss franc and British pound on prospects of German fiscal spending.
“We expect the German fiscal reform to pass next week and the ECB holding rates steady in April, a more hawkish outcome than is currently priced in,” Bunning said. “The USD leg may remain somewhat volatile as U.S. exceptionalism fears wane but tariffs pose some USD upside risks.”
The euro rose 0.27% to $1.087625. Against the pound, the euro gained 0.48% to 84.105 pence and rose 0.62% to 0.96260 against the Swiss franc. It is on track for a second straight week of gains against the dollar, pound, and the franc.
The University of Michigan survey on Friday showed U.S. consumer sentiment plunged in March but inflation expectations soared on worries about the impact of President Donald Trump’s sweeping tariffs. Consumers’ 12-month inflation expectations jumped to 4.9% from 4.3% in February.
Top U.S. Senate Democrat Chuck Schumer said on Thursday he would vote to advance a Republican stopgap funding bill, signaling that his party would provide the votes to avert a government shutdown.
The dollar strengthened 0.35% to 0.885 Swiss franc and up 0.58% for the week. Against the Japanese yen, the dollar strengthened 0.48% to 148.50 and was up 0.30% this week.
Japanese companies agreed to raise wages by 5.46% this year, topping both last year’s preliminary and final figures and likely marking the highest pay hike in 34 years.
The data is one important input into the Bank of Japan’s decision-making. Economists and markets see the central bank standing pat at its meeting next week as policymakers gauge global risks.
