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What’s happening: The euro rose on Tuesday amid rising geopolitical uncertainty.
What happened: The European Commission on Tuesday proposed a package to boost the region’s defence spending, due to the growing rift with the US.
Despite President Donald Trump’s tariff threats, the euro rose on expectations of the defence spending plan booting economic growth.
Why it matters: Some positive data releases supported investor sentiment for the euro on Tuesday.
On Monday, the Eurozone reported an easing in the annual inflation rate to 2.4% in February, from a six-month high of 2.5% in the previous month.
The HCOB Eurozone Manufacturing PMI rose to 47.6 in February, from January’s reading of 46.6. While the region’s manufacturing sector remained in the contraction zone, the downturn was the lowest since early 2023.
Meanwhile, Italy released its gross domestic product data that showed its economy expanded by 0.7% in 2024, higher than market expectations of 0.5% growth.
Data from the Eurozone on Tuesday showed that unemployment rate in the bloc remained steady at 6.2% for a third straight month in January. The figure came in better than market expectations of 6.3%.
The European Commission announced plans on Tuesday to extend €150 billion in loans to EU governments to enhance their defence spending, including air defence, drones and missiles. The plan to re-arm governments was driven by the growing divergence between the EU and US in handling the Russia-Ukraine war and uncertainties around President Donald Trump’s next moves.
European Commission President Ursula von der Leyen said, “I do not need to describe the grave nature of the threats that we face. Or the devastating consequences that we will have to endure if those threats would come to pass.” The EC President mentioned that the proposal of €150 billion is part of a larger package that could scale to as much as €800 billion.
The EUR/USD forex pair rose by 1.25% to 1.0620 on Tuesday.
What to watch: Investors will monitor the Eurozone’s PPI data, scheduled to be released today (14:00 UAE Time). Producer prices in the Eurozone, which remained flat year-on-year in December, is expected to rise by 1.4% in January.
Markets will also watch tariff announcements by the Trump administration. The US President’s next comments regarding the Russia-Ukraine peace deal will also be in focus.
Context: US stocks ended Tuesday’s trading session lower on investor concerns around Trump’s policies.
Details: After climbing steeply during the previous trading session, US stocks shed their gains on Tuesday.
Investors grew nervous after US President Donald Trump inked fresh tariffs into effect on some of its closest trading partners on Tuesday. Trump’s broad tariffs of 25% on Canada and Mexico and of 20% on China are feared to hit corporate profits, trigger inflation and slow economic growth in the US.
Fears of a trade war were further fuelled by Canada immediately slapping retaliatory tariffs on various US imports. China has also announced an additional 15% tariffs on US farm products. Mexico has warned that it would announce “tariff and non-tariff measures” by Sunday in response to Trump’s tariffs.
European leaders agreed over the weekend to draft a peace plan to present to the US, following the fallout between Donald Trump and Ukrainian President Volodymyr Zelensky. Uncertainties around what Trump may do to next to end the Russia-Ukraine war also impacted market sentiment.
The Dow Jones index fell 1.51% to 42,540.50, while the S&P 500 shed 1.22% to reach 5,778.31 and the Nasdaq 100 lost 0.40% to settle at 18,276.48 on Tuesday.
What to watch: Investors will monitor the composite PMI (18:45 UAE Time), services PMI (19:00 UAE Time) and factory orders (19:00 UAE Time) due for release today. The S&P Global US Composite PMI, which plunged to 50.4 in February from 52.7 in the previous month, is expected to remain stable at 50.4.
The ISM services PMI had declined to 52.8 in January, from 54 in the previous month. The figure had come in below market expectations of 54.3. The ISM services PMI for February is expected to slide slightly to 52.6. New factory orders, which tanked 0.9% to $578.5 billion in December, is expected to grow 1.6% in January.
Other Markets: European trading indices closed lower on Tuesday, with the Stoxx 600, FTSE 100, DAX and CAC 40 down by 0.10%, 1.55%, 1.22% and 0.35%, respectively.
A Russian drone attack late on Tuesday caused power, water and heating cuts in the port city of Odesa in Ukraine. The news sent the RUB/USD pair higher in forex trading this morning.
The Australian economy expanded by 1.3% year-on-year in the fourth quarter of 2024, accelerating from 0.8% growth in the previous quarter. The figure coming in above market estimates of 1.2% growth lent support to the AUD/USD forex pair.
Japan’s Au Jibun Bank Services PMI was revised higher to 53.7 in February, from a preliminary reading of 53.1. The figure coming in higher than January’s reading of 53.0 and being the highest since August 2024 sent the JPY/USD pair higher in forex trading this morning.
The Philippines said its annual inflation rate slowed to 2.1% in February, from 2.9% in the previous two months. The figure coming in better than market expectations of 2.6% and being the lowest reading since September 2024 lent support to the PHP/USD forex pair.
China’s Caixin General Services PMI rose to 51.4 in February, from January’s four-month low of 51.0. The figure surpassing market estimates of 50.8 sent the CNY/USD pair higher in forex trading this morning.
Spain’s HCOB services PMI and HCOB composite PMI (12:15 UAE Time), Taiwan’s foreign exchange reserves (12:20 UAE Time), Italy’s HCOB services PMI and HCOB composite PMI (12:45 UAE Time), France’s HCOB services PMI and HCOB composite PMI (12:50 UAE Time), Germany’s HCOB services PMI and HCOB composite PMI (12:55 UAE Time), Italy’s GDP growth (13:00 UAE Time), UK’s new car sales (13:00 UAE Time), UK’s S&P Global services PMI and composite PMI (13:30 UAE Time), Italy’s retail sales (14:00 UAE Time), South Africa’s business confidence (14:00 UAE Time), Ireland’s unemployment rate (15:00 UAE Time), Israel’s tourist arrivals (15:30 UAE Time), Portugal’s budget balance (15:30 UAE Time), Israel’s business confidence (16:00 UAE Time), Mexico’s gross fixed investment (16:00 UAE Time), Brazil’s S&P Global services PMI and composite PMI (17:00 UAE Time), Canada’s labour productivity (17:30 UAE Time), Canada’s S&P Global services PMI and composite PMI (18:30 UAE Time), EIA’s crude, gasoline and other fuel stockpiles change (19:30 UAE Time), and Russia’s unemployment rate, business confidence and retail sales (20:00 UAE Time).
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