The U.S. dollar slipped on Tuesday as persistent concerns over a potential recession weighed on investor sentiment, while optimism surrounding a possible German defense spending deal boosted the euro.

By mid-afternoon in European trading, the dollar index, which measures the greenback against a basket of major currencies, fell 0.6 percent, hovering near a four-month low.

The dollar faced pressure from growing speculation about a U.S. economic slowdown, fueled by a series of disappointing reports on business activity and consumer confidence. Over the weekend, President Donald Trump acknowledged the possibility of economic turbulence as his administration pursued mass government layoffs, federal spending cuts, and tax breaks. He also reiterated threats of additional trade tariffs, adding to market uncertainty.

This week, traders are closely watching key economic data, including the U.S. Consumer Price Index (CPI) and the Job Openings and Labor Turnover Survey (JOLTS), for further insight into inflation, economic stability, and the Federal Reserve’s potential policy moves.

Euro Climbs Against the Dollar

The euro strengthened by 0.7 percent to 1.0915 dollars, supported by ongoing negotiations over new military and infrastructure spending plans in Germany.

Investors are monitoring discussions among parties expected to form Germany’s next coalition government. However, the Greens have opposed the spending proposals championed by Friedrich Merz, the likely next chancellor, who argues they are crucial for addressing defense concerns and broader economic challenges.

The Greens’ resistance to both increased expenditures and easing Berlin’s strict borrowing rules has cast doubt over a potential deal between Merz’s conservative bloc and Chancellor Olaf Scholz’s Social Democratic Party. The prospect of this agreement had previously lifted global market sentiment.

Despite this, the Greens have introduced alternative spending proposals in an effort to broker a compromise, offering some relief to investors.

Elsewhere, the British pound gained 0.4% against the dollar, trading at $1.2934.