EUR/USD rises to near 1.0900 in North American trading hours on Monday. The major currency pair gains as the US Dollar (USD) drops as investors turn cautious ahead of the Federal Reserve's (Fed) interest rate decision, which will be announced on Wednesday. The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, falls to near 103.50.

The Fed is almost certain to keep interest rates steady in the current range of 4.25%-4.50%. Therefore, the US Dollar's (USD) outlook will be guided by the Fed's dot plot, which shows where officials see interest rates heading in the near and longer term, as well as the growth, employment, and inflation outlook in the Summary of Economic Projections (SEP). In the December meeting, Fed policymakers anticipated two interest rate cuts this year.
economic outlook in the press conference following the monetary policy decision. A slew of US officials, including President Donald Trump, have stated that tariff policies could lead to some economic shocks in the near term. On Sunday, US Treasury Secretary Scott Bessent said in an interview with NBC News, "I can predict that we are putting in robust policies that will be durable, and could there be an adjustment," adding that the country needed to be weaned off of "massive government spending." His comments came after the interviewer asked whether Trump's agenda could lead the economy to a recession.

Last week, US Commerce Secretary Howard Lutnick said that policies by the President are the most important thing America has ever had, and "they worth it" after being asked whether it would be worth executing Trump's policies even if they led to a recession. Market participants worry that Trump's tariff policies could be inflationary and batter households' consumption. Such a scenario bodes poorly for the US Dollar.

On the economic data front, the US Retail Sales data for February has come in weaker-than-expected. Retail Sales, a key measure of consumer spending rose by 0.2%, lower than estimates of 0.7%. In January, the consumer spending measure declined by 1.2%.
EUR/USD gains despite some weakness in Euro
EUR/USD moves higher due to significant weakness in the US Dollar (USD). The Euro (EUR) also underperforms despite German leaders, including Franziska Brantner-led-Greens, agreed to set up a 500 billion Euro infrastructure fund and dramatic changes in the borrowing rules or stretch in the so-called ‘debt brake', which would be approved in the lower house of Parliament on Tuesday.
Market participants expect the decision of German leaders to boost defense spending through a historic change in the debt brake will prompt economic growth. Ahead of the German leaders meeting on the debt deal, a March 10-14 Reuters poll showed that economists had revised their economic projections for the Eurozone on the optimism over debt reforms to 1.3% for 2026 from 1.2% anticipated a month ago.
A historic German debt restructuring plan has also increased Eurozone inflation expectations. This scenario is contrary to the European Central Bank's (ECB) current monetary expansion stance. On Friday, ECB policymaker and Austrian Central Bank Governor Robert Holzmann supported keeping interest rates steady in the April policy meeting. Holzmann's endorsement for a pause in the policy-easing cycle was backed by the assumption that US President Trump's tariffs and Germany's defense spending have stemmed risks of a resurge in inflationary pressures.
Meanwhile, increased hopes of a Russia-Ukraine truce could strengthen the Euro's appeal. Donald Trump is scheduled to meet Russian leader Vladimir Putin on Tuesday to discuss peace in Ukraine. Last week, Ukraine accepted a 30-day ceasefire deal after discussions with US leaders in Saudi Arabia.
In the near term, the major risk for the Euro is a potential US-European Union (EU) tariff war. On Thursday, President Trump threatened to impose 200% tariffs on European alcohol after the EU proposed retaliatory tariffs on the US against a 25% blanket levy on steel and aluminum imported by the US. During European trading hours on Monday, ECB Vice President Luis de Guindos said, "Trade war is bad news for the world economy, everyone loses in that situation."

Source: Fxstreet