EUR/USD strengthened above 1.0700 during the European session on Wednesday (05/03), the highest level seen this year. The major currency pair strengthened as the Euro (EUR) strengthened across the board after Germany's next chancellor candidate, Frederich Merz, and the Social Democratic Party (SDP) agreed to create a €500 billion (EUR) infrastructure fund and expand borrowing limits on Tuesday to boost defense spending and boost economic growth in the Eurozone. Such reforms could boost inflation in the Eurozone economy.

Meanwhile, investors await the European Central Bank's (ECB) monetary policy decision, which will be announced on Thursday. The ECB is almost certain to cut its Deposit Facility Rate by 25 basis points (bps) for the fifth consecutive time. Therefore, investors will be watching closely for ECB President Christine Lagarde's press conference after the policy meeting.

Lagarde is expected to reassure that the monetary policy path is clear but will not provide specific monetary expansion plans. Investors are keen to see what impact Trump's tariffs and German debt restructuring will have on the Eurozone inflation outlook.

However, investors remain concerned that US President Donald Trump's tariff agenda could spoil the party for Euro investors. The Eurozone's locomotive, Germany, is one of the major exporters of cars to the US. Trump has announced that he will impose a 25% tariff on foreign cars, up from the current 2.5% on German cars. (Newsmaker23)

Source: FXstreet