PHOTO: REUTERS/FILE

REUTERS, New York

The euro rose on Friday after German parties agreed on a fiscal deal that could boost defence spending and revive growth in Europe’s largest economy.

The dollar weakened against the euro but rose against the Swiss franc and the yen, underpinned by the likelihood the US government will avert a shutdown over the weekend, extending gains as data showed inflation expectations picked up, suggesting the Federal Reserve will likely be patient in cutting interest rates.

German Chancellor-in-waiting Friedrich Merz announced he had secured the crucial backing of the Greens for a massive increase in state borrowing. The deal will likely be approved by the outgoing parliament next week. It includes a 500 billion euro ($544.30 billion) fund for infrastructure and sweeping changes to borrowing rules.

Dominic Bunning, head of G10 FX Strategy at Nomura, said he sees upside for the euro especially against the Swiss franc and British pound on prospects of German fiscal spending.

“We expect the German fiscal reform to pass next week and the ECB holding rates steady in April, a more hawkish outcome than is currently priced in,” Bunning said. “The USD leg may remain somewhat volatile as US exceptionalism fears wane but tariffs pose some USD upside risks.” The euro rose 0.27 percent to $1.087625. Against the pound , the euro gained 0.48 percent to 84.105 pence and rose 0.62 percent to 0.96260 against the Swiss franc . It is on track for a second straight week of gains against the dollar, pound, and the franc.

The University of Michigan survey on Friday showed US consumer sentiment plunged in March but inflation expectations soared on worries about the impact of President Donald Trump’s sweeping tariffs. Consumers’ 12-month inflation expectations jumped to 4.9 percent from 4.3 percent in February.