Euro jumps as investors focus on fiscal spending, Ukraine talks

The euro jumped on Monday as investors weighed potential increases in fiscal spending across the euro area and prospects for a peace deal in Ukraine.

Ukrainian President Volodymyr Zelenskiy received a warm welcome in Britain after his meeting with U.S. President Donald Trump ended in disaster on Friday. British Prime Minister Keir Starmer said on Sunday that European leaders had agreed to draw up a peace plan to present to Washington.

The Kremlin said on Monday that someone would have to force Zelenskiy to make peace.

The single currency climbed 0.85 per cent to $1.0464, pulling away from Friday's low of $1.0359.

European Union Commission President Ursula von der Leyen will inform member states on Tuesday about plans to strengthen the European defence industry and the EU's military capabilities, she said on Monday.

Analysts said a possible peace deal in Ukraine and a likely increase of fiscal spending by euro zone countries could provide a boost to future growth, supporting the currency.

"A paradigm shift appears to be taking place in Germany," Robin Winkler, chief economist Germany at Deutsche Bank, said.

"Even if spent over ten years, this would be about as much money as the country has invested in East Germany since reunification," he added, referring to a Reuters exclusive about spending plans in Germany.

The parties in talks to form Germany's new government are considering quickly setting up two special funds potentially worth hundreds of billions of euros, one for defence and a second for infrastructure, three people with knowledge of the matter told Reuters.

Deutsche Bank recently turned neutral on the euro/dollar and said it saw upside risks from a possible material shift in German fiscal policy.

Germany's Social Democrats (SPD) said financing defence and infrastructure must take priority in talks led by their conservative rivals to form a new coalition government.

The euro jumped against other safe-haven assets such the Japanese and the Swiss currencies.

It was up 1.3 per cent to 158.30 against the yen and 0.68 per cent to 0.9433 versus the Swiss Franc.

"It is ever more clear that Europe urgently needs a plan to ensure undisrupted support for Ukraine," said Minna Kuusisto, chief analyst of global macro and geopolitics at Danske Bank, adding the risk is growing that the U.S. might completely cut off aid to Ukraine.

"We argue that arming Ukraine is by far the cheapest option for Europe," she said.

A more likely selective implementation of U.S. tariffs on essential imports would have a smaller effect than a blanket 25 per cent tariff on all EU exports to the United States, analysts say.

Trump last week floated a 25 per cent "reciprocal" tariff on European cars and other goods.

The U.S. dollar index - which measures the currency against the euro, sterling, yen, Canadian dollar and two other major rivals - eased 0.35 per cent to 106.90.

"We remain bullish on the dollar ahead of next round of tariffs, but if we are right with our baseline calls for a tariff delay and soft U.S. data, this should not be a good week for the greenback," Francesco Pesole, strategist at ING, said.

Bitcoin surged back to the cusp of $95,000 earlier on Monday after Trump named the token as among those to be included in a new strategic cryptocurrency reserve.

It was changing hands at $92,077.

Analysts flagged that market desperately in need of a catalyst to alter the recent bear trend for cryptos.

The Canadian dollar and Mexican peso each gained about 0.30 per cent to C$1.4428 and 20.445 pesos per U.S. dollar as negotiations with Canada and Mexico pressed on.

U.S. Treasury Secretary Scott Bessent encouraged Canada to follow Mexico in matching U.S. tariffs on Chinese goods.

The yen was up 0.40 per cent at 150.60 per dollar.