The euro breached the $1.17 mark on Thursday, reaching ranges final seen in September 2021. This 13% year-to-date surge positions the frequent foreign money heading in the right direction for its strongest annual efficiency since 2017 — and doubtlessly even since 2003. The rally due to this fact brings the euro nearer to the psychologically vital 1.20 threshold.
Since Donald Trump’s inauguration on 20 January 2025, the euro has appreciated roughly 15% towards the greenback. However what are the explanations behind the euro’s latest success, and the way a lot additional can it rise?
Fiscal flip in Germany is a recreation changer
The reason lies in an uncommon convergence of fiscal stimulus in Europe, waning confidence in US financial coverage, and a build-up of speculative greenback quick positions which are fuelling the euro’s ascent.
Whereas the European Central Financial institution (ECB) has prolonged its rate-cutting cycle, the important thing shift underpinning the euro’s power has come from fiscal coverage — significantly in Germany.
In March, the Bundestag accredited a constitutional modification exempting army and infrastructure spending from the nation’s strict “debt brake” legislation.
This authorized reform paved the best way for a €500 billion infrastructure fund, earmarked for inexperienced power, digital transformation, and regional growth by 2035 — all structured off-budget to bypass debt constraints.
Concurrently, Berlin has pledged to extend defence spending to three.5% of GDP, aligning with NATO’s Readiness 2030 objectives and the broader €800 billion ReArm Europe initiative.
US turmoil weighs on greenback sentiment
Throughout the Atlantic, the US financial system has proven indicators of softening. First-quarter GDP contracted, pushed partly by a front-loading of imports forward of recent tariffs which had been set to take impact in April.
Nevertheless, market consideration has targeted extra sharply on the political strain mounting towards Federal Reserve Chair Jerome Powell.
Regardless of Powell reiterating this week that fee cuts are untimely — citing strong progress and tariff-driven inflation uncertainties — investor confidence in Fed independence has been shaken.
In line with BBVA analysts: “Jerome Powell shouldn’t be leaning towards a fee minimize as quickly as July, though there’s an inner debate on the Fed concerning the timing of the subsequent fee minimize, and it could nicely proceed to develop.”
They added that the greenback’s weak spot has deepened “amid studies that US President Donald Trump is contemplating deciding on and asserting a alternative for Fed Chair Jerome Powell by September or October”. That is even if Powell’s time period is about to finish in Could 2026.
Markets interpret this as a possible “shadow chairman” state of affairs, the place somebody behind the scenes might maintain rates of interest low, thereby placing unfavorable strain on the greenback.
Euro-dollar outlook: What analysts are watching
Francesco Pesole, analyst at ING, underscored the rising relevance of upcoming US employment information.
“Information on the roles market has vital influence potential now that inflation figures for Could have did not set off a dovish response by Powell. The rationale might be that if one thing strikes on the second a part of the mandate (full employment), a number of extra FOMC members might be part of the dovish ranks regardless of inflation issues.”
He famous that markets presently worth a one-in-four likelihood of a fee minimize on 30 July and 62 foundation factors of easing by the top of the yr.
In the meantime, investor positioning continues to steer euro-dollar actions.
Matthew Ryan, Head of Market Technique at Ebury, mentioned: “EUR/USD is sort of solely pushed by rising greenback shorts, reasonably than a extra constructive outlook for the frequent bloc’s financial system.” In different phrases, the euro is rising towards the greenback as a result of traders are betting towards the buck, reasonably than putting extra religion within the euro.
Technical indicators additionally level to continued momentum. Luca Cigognini, analyst at Intesa Sanpaolo, commented: “The short-term construction of EUR/USD stays typically bullish. A break above 1.1717, now a resistance stage, might push the euro towards 1.1750, elevating the subsequent goal to 1.1800/1.1820.”
Past these ranges, merchants are eyeing resistance at 1.1910 — the highs of August 2021 — adopted by the psychological barrier at 1.20.
Larger targets embrace 1.2350 (January 2021) and 1.2550 (February 2018), however a lot will rely on how financial indicators and political developments evolve within the second half of the yr.