BUZZ-COMMENT-US recap: EUR/USD receives defense spending bounce

March 3 (Reuters) - The euro surged against a broadly weaker dollar on Monday after European leaders agreed to draft a Ukraine peace plan for U.S. consideration and acknowledged the need to increase defense spending.

The dollar declined along with Treasury yields following an ISM survey that suggested U.S. manufacturing is on the verge of contracting again.

The ISM index came in below expectations at 50.3, with the new orders sub-index dropping to 48.6 from 55.1 in January and prices paid sub-index rising to 62.4, its highest level since June 2022. The ISM data contrasted with the S&P manufacturing PMI, which climbed to a nearly three-year high of 52.7.

Later this week, ISM services, weekly jobless claims, and the February employment report will provide further insights into the health of the U.S. labor market. Additionally, New York Fed President John Williams is scheduled to speak on Tuesday.

Risk tone waned further after U.S. President Donald Trump said that "America will not put up with it for much longer" while pointing to recent comments made by Ukrainian President Volodymyr Zelenskiy about the end of the war with Russia.

EUR/USD rose over 1%, revisiting the 1.05 level as the prospect of more stimulus in Europe pushed shares to a record close.

On Tuesday, EU Commission President Ursula von der Leyen will inform member states about plans to strengthen the European defense industry.

Meanwhile, parties expected to form Germany's new government are considering two special funds, one for defense and another for infrastructure.

Despite the euro's bounce reversing two days of losses, there is skepticism about entering long euro positions due to uncertainty about European spending and Ukraine peace proposals, the prospect of U.S. tariffs, and an expected rate cut by the European Central Bank on Thursday. The 100-day moving average at 1.0511 is nearby resistance, followed by the year-to-date high of 1.0532.

EUR/CHF jumped above its 21-day moving average of 0.9408, only to see about half its gain reversed. The pair is likely to be supported by accommodative central bank policy. Over the weekend, Swiss National Bank Chairman Martin Schlegel said that the bank would not hesitate to use interest rates and currency interventions to steer policy, despite the risk of being labeled a "currency manipulator" by the United States.

GBP/USD also gained over 1%, with the pair eyeing a 10-week high of 1.2717 as the dollar index posted its worst day in a month. Comments from Bank of England policymakers will be monitored midweek to gauge the appetite for further rate reductions. A rising 21-day moving average at 1.2556 offers nearby support, while a move above the 200-day moving average of 1.2786 would likely see upward momentum build as bulls engage.

USD/JPY continues to act as a haven barometer, with the pair slipping back toward 150 as U.S. shares and yields retreat. Comments from Bank of Japan Governor Kazuo Ueda on Wednesday will be closely watched for any new policy developments. Barring any surprises on U.S. tariffs, the pair is seen settling in a 149-151 range until then. The risk of a strong short-covering rally in USD/JPY is not evident as long as as it remains below 152 and the BOJ stays on a tightening path.

Treasury yields fell 1 to 6 basis points as the curve flattened The 2s-10s curve was down about 3 basis points to +18.5bp.

The S&P 500 fell 1.03% as energy and tech shares retreated.

Oil slid 2% with OPEC+ expected to proceed with a planned April oil output hike.

Gold rose 1.0% and copper gained 1.5% as dollar retreated

Heading toward the close: EUR/USD +1.12%, USD/JPY -0.34%, GBP/USD +1.03%, AUD/USD +0.45%, =USD -0.70%, EUR/JPY +0.79%, GBP/JPY +0.72%, AUD/JPY +0.14%.

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