Euro drops slightly as traders gauged the outcome of a debt in Germany around major fiscal reforms, although the currency hovered around multi-month highs against the U.S. dollar.

By 10:12 ET (14:12 GMT), the euro had dropped against the greenback by 0.3% to $1.0860, but stayed near a five-month peak touched earlier this week. Sterling inched down on the dollar to $1.2946.

Lawmakers in Germany are considering a proposed 500 billion euro fund for defense and infrastructure spending, as well as a loosening to the country's traditionally strict borrowing rules. The plans have been put forward by the parties who are widely tipped to form the next coalition government in Europe's largest economy.

"A couple of days ago, the Green party said it expected a deal with Chancellor-to-be Friedrich Merz by the end of the week," analysts at ING said in a note to clients. "Once that is announced, we could see a tick higher in the euro, although markets are already almost fully pricing it in."

Elsewhere, the dollar index, which tracks the greenback against a basket of its currency peers, moved up by 0.2% to 103.82, as markets weighed the implications of a producer price reading for February that was unexpectedly unchanged on a month-on-month basis. Federal Reserve officials will likely be closely monitoring components in the numbers that factor in to its preferred gauge of inflation, especially ahead of the central bank's upcoming monetary policy gathering next week.

Ongoing international trade tensions were also in focus, particularly after U.S. President Donald Trump threatened to place 200% tariffs on alcohol imports from the European Union in response to the bloc rolling out retaliatory countermeasures against his steel and aluminum levies.

Investors were keeping tabs on the potential of a U.S. government shutdown as well after Senate Democrats said they would block a bill to avert a shuttering of the federal government.
"A stabilisation might be on the cards for now; in the coming weeks, we still see upside risks for the greenback," the analysts at ING said.

Source: Investing.com