EUR/USD gains as US Dollar declines, Fed’s policy takes centre stage

EUR/USD rises to near 1.0900 to start the week as investors await the Fed’s monetary policy decision on Wednesday.
The Fed is widely anticipated to keep interest rates steady as the focus shifts to the dot plot and Powell’s comments.
Greens’ signal to German debt restructuring deal and optimism over Russia-Ukraine peace could strengthen the Euro.

EUR/USD moves higher due to significant weakness in the US Dollar (USD). The Euro (EUR) also underperforms despite German leaders, including Franziska Brantner-led-Greens, agreed to set up a 500 billion Euro infrastructure fund and dramatic changes in the borrowing rules or stretch in the so-called ‘debt brake’, which would be approved in the lower house of Parliament on Tuesday.

Market participants expect the decision of German leaders to boost defense spending through a historic change in the debt brake will prompt economic growth. Ahead of the German leaders meeting on the debt deal, a March 10-14 Reuters poll showed that economists had revised their economic projections for the Eurozone on the optimism over debt reforms to 1.3% for 2026 from 1.2% anticipated a month ago.

A historic German debt restructuring plan has also increased Eurozone inflation expectations. This scenario is contrary to the European Central Bank’s (ECB) current monetary expansion stance. On Friday, ECB policymaker and Austrian Central Bank Governor Robert Holzmann supported keeping interest rates steady in the April policy meeting. Holzmann’s endorsement for a pause in the policy-easing cycle was backed by the assumption that US President Trump’s tariffs and Germany’s defense spending have stemmed risks of a resurge in inflationary pressures.

Meanwhile, increased hopes of a Russia-Ukraine truce could strengthen the Euro’s appeal. Donald Trump is scheduled to meet Russian leader Vladimir Putin on Tuesday to discuss peace in Ukraine. Last week, Ukraine accepted a 30-day ceasefire deal after discussions with US leaders in Saudi Arabia.

In the near term, the major risk for the Euro is a potential US-European Union (EU) tariff war. On Thursday, President Trump threatened to impose 200% tariffs on European alcohol after the EU proposed retaliatory tariffs on the US against a 25% blanket levy on steel and aluminum imported by the US. During European trading hours on Monday, ECB Vice President Luis de Guindos said, “Trade war is bad news for the world economy, everyone loses in that situation.”