Euro Hits 4-Month High Amid Hopes for a German Defense Deal

The euro surged to a four-month high against the dollar, supported by market optimism over the potential signing of a German defense spending deal by the end of the week. Meanwhile, the U.S. dollar index fell to its lowest level since October due to growing concerns about an economic recession in the United States.

Franziska Brantner, co-leader of Germany’s Green Party, stated in an interview with Bloomberg News that her party is willing to negotiate an increase in state borrowing to boost defense spending and stimulate economic growth.

This statement helped push the euro to $1.09205 during early European trading, its highest level since November, recording a 0.7% gain.

Commenting on the market reaction, Nick Rees, Head of Macro Research at Monex Europe, noted that "markets are responding positively to this news, offering a contrast to the negative headlines from the previous day."

On Monday, the euro faced some resistance after the Green Party rejected support for broad debt rule reforms and a €500 billion infrastructure fund. This move could hinder spending plans that had previously fueled market enthusiasm, triggering a sharp sell-off in German government bonds.