The US dollar fell in European trade on Tuesday against a basket of major rivals, sharpening the decline for the seventh straight session and plumbing five-month lows amid concerns about US recession.

Conversely, the euro continues to shine and attract investments, hitting four-month highs on hopes for massive new German stimulus plans. 

The US labor sector also weakened unexpectedly last month, bolstering the odds of a Fed rate cut in the first half of the year.

The Index

The dollar index fell 0..5% to 103.33, the lowest since October 2024, with a session-high at 103.92.

On Monday, the index lost 0.1%, the sixth loss in a row as US treasury yields declined.

Growth Concerns 

Investors are worried about slower US growth after aggressive tariffs on major trade partners, while recent labor data and government layoffs raised more concerns. 

US Treasury Secretary Scott Bessent said the economy might slow down as it shifts from government spending to private investments, and reaches a more sustainable balance.

He believes that some tariff levels will always be necessary to fix some economic imbalances around the world and secure more stable supply chains.

President Trump said during a Fox News interview that the US is undergoing a transition phase, with return of wealth to the US through trade and economic policies, including tariffs to boost local industry.

US Rates

Fed Chair Jerome Powell said it remains to be seen whether Trump’s tariff plans will be inflationary. 

According to the Fedwatch tool, the odds of a Fed 0.25% rate cut in March stood at just 3%.

Now investors await important US inflation data this week to gather more clues.

Euro Shines 

The euro surged above $1.09 for the first time this year, hitting four-month highs and on track for more gains on hopes for more eurozone investments, especially on defense. 

The German coalition parties are preparing to pass a huge infrastructure and military spending plan to jumpstart the economy and bolster European defense against Russian threats. 

Gold prices rose in European trade on Tuesday for the first session in four, trading once again above $2900 as the dollar continues to fall while haven demand surges following massive losses in global stock markets. 

Investors now await important US inflation data for February, expected to provide fresh pricing to the odds of a Fed rate cut in March.

Prices

Gold prices rose 0.8% today to $2911 an ounce, with a session-low at $2880.

On Monday, gold lost 0.7%, the third loss in a row on profit-taking away from a week high at $2930.

The Dollar

The dollar index fell 0.5% on Tuesday, expanding losses for the seventh straight session and plumbing five-month lows at 103.33 against a basket of major rivals.

A weaker dollar makes greenback-denominated gold futures costlier to holders of other currencies. 

Investors are concerned that Donald Trump’s aggressive trade policies would hurt growth both in the US and globally.

US Rates

Fed Chair Jerome Powell said it remains to be seen whether Trump’s tariff plans will be inflationary. 

According to the Fedwatch tool, the odds of a Fed 0.25% rate cut in March stood at just 3%.

Now investors await important US inflation data this week to gather more clues.

The SPDR

Gold holdings at the SPDR Gold Trust fell 2.59 tons on Monday, the fourth drop in a row to a total of 891.75 tons, the lowest since February 20.

The euro rose in European trade on Tuesday against major rivals, maintaining gains for the third straight session against the dollar and trading near four-month highs, as markets await the massive German stimulus spending plan to be passed this week. 

Legislative approval of the plan would reduce the need for European Central Bank rate cuts, which would underpin the euro, however, the EU continues to face tariff risks from the US.

The Price

The EUR/USD pair rose 0.3% today to $1.0868, with a session-low at $1.0828.

The pair rose 0.1% on Monday, hitting a four-month high at $1.0888 following weak US jobs data.

German Spending 

Euro registered massive gains last week as German government yields spiked by 40 basis points, as political leaders agreed on a 500 billion euros infrastructure plan, while agreeing to spend more on defense. 

It’s an inflationary policy and thus would reduce the odds of an ECB rate cut in upcoming months. 

Analysts expected a marked uptick in German economic growth if the economic reforms were executed, with some banks estimating German GDP to grow by 1.4% in both 2026 and 2027, up from 1.2% in previous forecasts.

However, the German and eurozone economies still face major risks as the US prepares to impose tariffs on European products soon, which will likely drag the euro down heavily against the greenback. 

The Japanese yen rose in Asian trade on Tuesday against major rivals, extending the gains for the second straight session against the dollar and hitting a five-month high on mounting risk aversion and haven demand with massive US stock selloffs. 

The gains are also underpinned by a drop in US 10-year treasury yields, which boosted the odds of a Fed rate cut in the first half of the year.

The Price

The USD/JPY fell 0.5% today to 146.54 yen per dollar, the lowest since October 2024, with a session-high at 147.27.

The yen rose 0.5% on Monday, the third profit in four days, as US yields and stocks dropped.

US Stocks

US stock indices marked their worst daily loss since September 2022 on Monday, plumbing six-month lows as investors flee the market on concerns about Trump’s tariffs and US recession.

The S&P 500 is now down 8.6% from its February 19 record high, losing $4 trillion of market value since then.

A series of controversial Trump policies spiked uncertainties for companies and consumers, with the worsening trade war damaging sentiment. 

Japan’s Nikkei followed suit  and lost over a thousand points, hitting six-month lows, as the US is Japan’s second largest trade partner. 

US Yields

US 10-year treasury yields fell 0.8% on Tuesday, pressuring the greenback against major rivals.

Concerns are increasing about US growth, especially after weak US jobs data in February. 

The odds of a Federal Reserve 0.25% interest rate cut in March are still standing at 5%.