The euro rose in European trade on Friday against a basket of major rivals, resuming gains against the dollar and trading near four-month highs, and about to mark the biggest weekly profit in 16 years.
The recently announced massive German stimulus plans accelerated inflation forecasts in the eurozone, which might prompt the ECB to tighten its monetary policies once more.
The European Central Bank voted on Thursday to cut interest rates to December 2022 lows, the fifth such cut in a row, with the bank expecting a pause in the cycle of rate cuts in April.
The Price
The EUR/USD pair rose 0.3% today to $1.0819, with a session-low at $1.0779.
The pair closed down 0.1% on Thursday, the first loss in four days on profit-taking away from four-month highs at $1.0853.
Weekly Trades
The EUR/USD pair is up 4.3% so far this week, marking the first weekly profit in three weeks, and the largest weekly profit since March 2009.
Massive German Spending Plan
Germany’s coalition parties agreed to form an infrastructure fund with a budget of 500 billion euros, while changing borrowing rules to bolster military spending and economic growth.
Such massive plans only serve to underpin the euro as the debt limiters are lifted and growth accelerated.
ECB
The European Central Bank cut main borrowing rates by 25 basis points to 2.5% as expected, noting in its statement that inflation has slowed down in line with forecasts.
The ECB now expects inflation to hit 2.3% this year, before slowing down to 1.9% in 2026, before rising to 2% in 2027.
The ECB reduced forecasts for eurozone economic growth in 2025 to 0.9%, and in 2026 to 1.2%, and in 2027 to 1.3%.
Lagarde
ECB President Christine Lagarde said the decision to cut interest rates was in line with economic developments and data in the eurozone.
She noted that inflation started to fall considerably in line with forecasts, and will likely settle at the targets sustainably.
She added that the decision to cut or maintain interest rates in the future will rely on upcoming data and developments.
European Rates
Reuters reported that the ECB policymakers expect a pause in rate cuts in April before embarking on another round of cuts
The odds of an ECB rate cut in April is now less than 50%, compared to a 60% chance next week.
Interest Rate Gap
The US-eurozone interest rate gap will likely expand to 185 basis points in favor of the US, which continues to underpin the US dollar against the euro.
