Global markets experienced significant shifts on Wednesday as two major forces converged: the widening U.S. trade conflict and a landmark change in German fiscal policy.
The U.S. dollar slid to three-month lows, falling 2.3% over three days — its largest decline since late 2022 — after Washington imposed new tariffs on imports from Canada, Mexico and China. Both Canada and China responded quickly with retaliatory tariffs, and Mexico signaled it would follow suit, intensifying concerns about a broader trade escalation and weighing on safe-haven demand for the dollar.
In Europe, German political parties agreed to an unprecedented €500 billion infrastructure package and fundamentally altered long-standing borrowing rules. Deutsche Bank strategist Jim Reid described the move as “one of the largest fiscal shifts in post-war history,” while other commentators likened it to a “really big bazooka.” The announcement sent 30-year German bond yields sharply higher, rising by nearly a quarter of a percentage point — the largest one-day gain since October 1998 — as investors adjusted to a more expansionary fiscal stance. The euro climbed to a four-month high against the dollar, and European equity markets rose about 1.2%, pushing stock indexes to new highs.
Meanwhile in Beijing, China’s National People’s Congress kept the official growth target for 2025 at 5% but raised the planned budget deficit from 3% to 4% of GDP, signaling a willingness to use fiscal policy to offset external headwinds from U.S. tariffs. The move reflects a cautious but active response to slowing external demand and the need to support domestic growth.
Commodities also reacted to the evolving global picture. Oil prices fell for a third consecutive day to six-month lows as traders weighed the potential for weaker energy demand amid escalating trade tensions and anticipated production increases from OPEC+ in April. The combination of trade-driven demand concerns and expected supply additions contributed to softer crude prices.
Overall, Wednesday’s developments highlighted how trade policy and major fiscal decisions can quickly reshape investor expectations across currencies, bonds, stocks and commodities. Markets adjusted rapidly to the prospect of broader tariff retaliation and to Germany’s decisive shift toward large-scale public investment, underscoring the interconnected nature of policy moves in today’s global economy.