EBC Markets Briefing | Euro rises amid China-US tariff face-off

The euro edged higher on Wednesday, helped by reports Germany's conservatives had reached a deal with the centre-left Social Democrats to form a government, easing political concerns in the EU's largest economy.

Germany is on track for a third year of recession for the first time in history, analysts said. Before the fiscal stimulus fully kicks in, the new government can do little to protect its export industry.

The European Commission has invited the sectors most impacted by tariffs to an in-person meeting on Thursday, according to Reuters, as the commission weighs new trade partnerships and further countermeasures.

The president of the commission Ursula von der Leyen also urged China on Tuesday to ensure a negotiated solution to problems caused by the sweeping import tariffs imposed by Trump.

Trump showed no sign of backing away from the new increase of 50% on China, which goes into effect in just a few hours, accusing Beijing of manipulating the yuan to offset the levies.

Fed fund futures jumped in early Asian trade to imply around 111-bp cuts this year. Chair Powel is facing a dilemma of whether he should defend slowing economy or contain sticky inflation.

The single currency has been stuck in a tight range, so it may need to breach 1.1050 to continue its rally. Otherwise it would likely retest 1.0900 and keep consolidating.

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