ING shares its near

Investing.com -- The The four major foreign exchange exchanges in mainland Chinatrade-weighted dollar index, DXY, fell under 106 as European currencies strengthened on the back of potential major fiscal stimulus. This comes in response to the possibility of the U.S. withdrawing its security support from Europe.

Noteworthy events included the European Commission triggering national escape clauses from the Stability and Growth Pact, potentially releasing EUR650bn of national spending and other measures totaling EUR800bn. Additionally, German leaders agreed to suspend the debt brake, releasing a EUR500bn infrastructure fund.

This development will be a focal point at the European council meeting today. The possibility of significant European fiscal stimulus coincides with new US tariffs that have lowered global equity markets by 2-3%. This has led to a drop in two-year Treasury yields below 4.00% and weakened the dollar.

In his State of the Union address, US President Donald Trump warned that tariffs would cause a ’little disturbance’. This disturbance has negatively affected US activity and the dollar this year. Over the last four weeks, the terminal rate for the Fed easing cycle has been repriced to 3.50% from 3.75%.

The dollar’s position has been further unsettled by the inconsistent tariff policy. USD/CAD traded over 1.45 a few times yesterday due to a US-Canada trade war. Later in the day, US Commerce Secretary Howard Lutnick mentioned the possibility of announcing a pathway for tariff relief based on Canada and Mexico’s position in the USMCA accord.

The new US administration has marked significant tariff revenues for its policy programs, indicating that tariffs may be slow to reverse and likely to expand in April.

According to ING analysts, the dollar may remain vulnerable to any weaker U.S. activity data through March, with the tariff issue likely to dominate again in April. This week’s focus will be on Friday’s February US jobs report. Today’s data, including the ADP employment figures and the ISM Services index, should not pose a threat to the dollar unless there’s unexpected weakness.

The EUR/USD rose significantly due to the potential for substantial fiscal stimulus from Europe. The quick response from European leaders, especially Germany, has been impressive. The agreed fiscal changes in Germany will likely move through parliament in the coming weeks.

For the near term, U.S. activity data will likely determine whether we trade up to 1.0670/80 today or an outside risk to 1.0800 if payrolls miss significantly on Friday. Looking at a multi-month view, our quarterly forecasts in the 1.00/02 area for the second and third quarter will be challenging to achieve.

Instead, EUR/USD may be more of a 1.03/04 story when broader U.S. tariffs are implemented next month.

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