The euro has marked its most significant weekly gain against the U.S. dollar in 16 years, fueled by Germany's fiscal reforms. Concurrently, the dollar is hovering near a four-month low as markets await U.S. jobs data.
This shift occurs amidst ongoing economic uncertainties in the U.S. and a notable change in Europe's economic strategy. The U.S. dollar index has faced challenges, reminiscent of the period following Donald Trump's election. The euro's rise is linked to the European Central Bank's policies and Germany's substantial spending plans.
Uncertain trade policies in the U.S. are impacting confidence and economic activity. Weaker U.S. data and declines in U.S. equities have led to a drop in short-term U.S. swap rates. The market anticipates potentially soft jobs data, with consensus pointing to a gain of 160,000 and the unemployment rate remaining at 4.0%.
The U.S. dollar is vulnerable and could be affected by weak data. The dollar index has already seen its largest weekly decline since November 2022. Given recent events and the dollar index's heavy weighting towards European currencies, it appears the dollar index may have peaked for the year.