The euro remained strong ahead of the European Central Bank policy meeting, and Asian equities increased Thursday as investors hoped that trade tensions would subside following U.S. President Donald Trump’s one-month exemption of automakers from tariffs.

As the parties in negotiations to create Germany’s new government decided to try to ease budgetary constraints, German long-dated bonds had their worst sell-off in years, which caused Japanese government bonds to plummet in Asian hours.

As morale remained shaky, the yield on Japan’s 10-year government bonds reached an almost 16-year high.

Following Tuesday’s imposition of 25% tariffs on imports from Mexico and Canada as well as new penalties on Chinese goods, which sparked concerns about economic growth, markets are still mostly focused on the intensifying global trade war.

However, the White House said Wednesday that Trump will give automakers a one-month exemption from his 25% tariffs on Canada and Mexico, provided they adhere to current free trade regulations.

As a result, U.S. equities surged, supporting Asian markets in the early going. Tokyo’s Nikkei NI225 increased 0.8%, while MSCI’s broadest index of Asia-Pacific stocks outside of Japan (.MIAPJ0000PUS) up 0.86%.

Chris Weston, chief of research at Pepperstone, stated that it is nearly hard to get any sort of trustworthy signal from the headlines.

“With tariff policies changing nearly every day, it is today nearly hard to have any kind of confidence to make strategic decisions; this will have consequences. One must genuinely feel for those enterprises who need to prepare ahead.

As a trade battle with the United States intensifies, China and Hong Kong shares increased Thursday, a day after Beijing announced an aggressive economic growth target and promised greater assistance for domestic consumption and the tech sector.

Hong Kong’s Hang Seng Index HSI, the world’s top-performing major stock market, up 2.4%, while China’s blue-chip index, 3 399300, increased 0.6%. On Thursday, Hang Seng reached its highest level since January 2022 and is up 20% so far this year.

ECB Day

As policymakers struggle with the trade war and a regional focus on rearmament, investors will be watching Thursday’s European Central Bank meeting, when it is anticipated that interest rates will be lowered once again.

The meeting takes place a day after the parties in negotiations to form Germany’s new government agreed to alter borrowing laws and establish a 500 billion euro infrastructure fund, which caused the euro to soar 1.5% and German bonds to sell off.

German 10-year Bund futures (FGBLc1) dropped 0.6% on Thursday, suggesting that cash bond prices will probably drop later. The benchmark 10-year yield for the euro zone, DE10YT=RR, increased 30 basis points on Wednesday, marking the worst daily increase since mid-March 2020, when the influenza crisis was at its worst.

Early in the Asian day, the euro (EUR=EBs) was trading at a four-month high of $1.0808, forecast to increase more than 4% this week, its highest weekly performance since March 2009.

Is it the gamechanger that switches Germany from a drag on activity to an engine of growth? ” It won’t be a magic bullet, but it is definitely a step in the right direction,” said Kyle Chapman, FX markets analyst at Ballinger Group.

“While Germany has plenty of space to rack up some more debt, the likes of France and Italy do not have the same privilege, and a fiscal risk premium might put the reins on a stimulus-fuelled rally.”

At 104.11, the dollar index DXY, which compares the value of the US dollar to six other currencies, fell to its lowest point since early November.

As traders wait for clues about the Federal Reserve’s policy course from Friday’s U.S. non-farm payrolls report, gold prices in commodities remained stable at $2,924.11 an ounce.

After faltering in the earlier sessions of this week due to a higher than anticipated rise in U.S. crude stocks, OPEC+ intentions to boost output, and U.S. tariffs on critical oil sources, oil prices attempted to recover.

On Wednesday, the price of Brent futures (BRN1) was around a three-year low.