The euro hit four month highs on Wednesday against the U.S. dollar, as Europe's growth prospects improved after Germany's proposed 500-billion euro ($531 billion) infrastructure fund, potentially offsetting global trade tensions.

Goldman Sachs and Nomura expect increased military and infrastructure spending to boost Germany's economic growth in 2025 and predict spillover effects for its European neighbours.

The euro extended its rally on Wednesday and hovered at near four-month highs as Germany's proposed 500 billion euro ($531 billion) infrastructure fund boosted Europe's growth prospects despite global trade tensions worrying investors.

Germany’s historic plan to ramp up spending shook European markets on Wednesday, powering equities past their US peers, reviving the euro from the brink of parity with the dollar and consigning German bunds to their worst day since 1990.

The euro experienced its best week against the dollar in 16 years, driven by Germany's major fiscal reforms. The currency market saw volatility due to U.S. trade and economic growth uncertainties. The U.

The two political parties expected to form the next German government have agreed to significantly loosen the country’s constitutional restriction on deficits, enabling 1 trillion euros ($1.08 trillion) or more in new borrowing and spending on defense and infrastructure.

The pound weakened against the euro on Wednesday as traders piled into the common currency after Germany's plan for a massive infrastructure fund and an easing of debt rules to boost spending, though the British currency did gain on the dollar.

The parties hoping to form Germany's next government agreed to create a 500 billion euro infrastructure fund and overhaul borrowing rules, a tectonic spending shift that jolted markets on Wednesday on hopes of reviving Europe's largest economy.

Leaders of the likely incoming coalition government announced plans to reform the debt brake and create a special investment fund.

So-called core inflation, which strips out energy, food, alcohol and tobacco costs, came in at 2.6% in February, also lower than January's print. Euro zone inflation eased to 2.4% in February but came in slightly above analyst expectations, according to flash data from statistics agency Eurostat out on Monday.