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March 5 (Reuters) - The euro surged higher on Wednesday, driven initially by optimism over a massive German spending proposal enhancing European growth prospects and gaining further after news of a 30-day delay in tariffs on vehicles built in North American. Markets interpreted the delay as suggesting flexibility in U.S. trade policies, contributing to EUR/USD's 1.5% gains, which produced a four-month high of 1.0786.
Investors flocked to the common currency and German stocks on the spending proposal.
EUR/USD's three-day rally left it trading above its 200-day moving average of 1.0722 ahead of Thursday’s European Central Bank meeting, with the current weekly gain of nearly 4% is the largest since November 2022.
Sentiment remains positive with option risk reversals on the one-month tenor the most euro bullish since August amid a rush for calls.
Bank forecasters now see a move toward 1.10, given the European fiscal spending backdrop and renewed optimism about a Ukraine peace deal. President Volodymyr Zelenskiy mentioned "positive movement" in cooperation with the United States, expecting results next week involving a future meeting.
EUR/CHF saw its biggest rise in 10 years as hedge funds capitalized on positive momentum in Europe.
A broadly weaker dollar and a 3% drop in oil prices pushed the dollar index below its 200-day moving average to a four-month low. However, a positive shift in sentiment following the tariff delay news helped ease selling pressure.
Leaders affected by tariffs are expected to hold a joint call with President Donald Trump on Thursday. U.S. data showed a below-forecast rise of 77,000 in ADP private payrolls, increasing focus on Friday's payrolls for February may be weak. This contrasted with ISM data indicating an unexpected acceleration in growth in the service sector in February.
Trade, weekly jobless claims and Fed speakers are in focus on Thursday.
GBP/USD continued its three-day climb, reaching a four-month high after surpassing its 200-day moving average at 1.2787. Two-year UK government yields firmed as Bank of England policymakers remained cautious on easing policy due to inflation risks.
USD/JPY remained defensive for most of the New York session but lacked downward momentum as EUR/JPY short-covering provided support. The pair eyes its year-to-date low of 148.10 on further losses if U.S. data disappoints.
Treasury yields were up 2 to 6 basis points after reversing earlier losses. The 2s-10s curve was up about 3.7 basis points to +29.2bp.
The S&P 500 rose 0.55% amid broad sector gains.
Oil slumped over 3% to a three-year low after U.S. crude oil stockpiles posted a build, adding further supply headwinds
Gold was flat while copper jumped over 5%, helped by China's fresh stimulus measures and Germany's infrastructure fund plans.
Heading toward the close: EUR/USD +1.36%, USD/JPY -0.58%, GBP/USD +0.66%, AUD/USD +0.80%, =USD -1.04%, EUR/JPY +0.78%, GBP/JPY +0.08%, AUD/JPY +0.24%.(Editing by Burton Frierson Reporting by Robert Fullem)
