The euro stabilized around $1.08 on Monday, holding its strongest level since early November, as investors took a breather following last week's sharp surge.
Euro stabilizes at four-month high
This rally was driven by a pivotal shift in Germany's fiscal policy, marking a significant turning point for the common currency. The euro had its largest weekly gain in 16 years during the first week of March, following the unveiling of major fiscal reforms by Germany’s leading political parties. These reforms included plans to overhaul the country's debt brake and establish a €500 billion infrastructure fund designed to stimulate economic growth and address the long-standing underinvestment in public infrastructure. The proposed changes provided a strong boost to investor sentiment, signaling that Germany is ready to embrace a more flexible fiscal policy to support the economy.
Political developments impact on euro
Additionally, European leaders made further strides towards strengthening the region’s security, agreeing on Thursday to a substantial increase in defense spending. This agreement aimed at bolstering the EU’s defense industry and military capabilities was seen as an important step toward enhancing the region's geopolitical standing in the face of ongoing global uncertainties. The move also signaled a deeper commitment to securing Europe’s long-term stability, which likely helped to underpin the euro's strength in the market.
On the monetary policy front, the European Central Bank (ECB) took a measured approach, implementing a widely expected 25bps rate cut. While this action was in line with market expectations, the ECB also acknowledged that its monetary policy is becoming less restrictive. This shift in tone led to speculation that the central bank may pause further rate reductions, especially as the economic outlook begins to stabilize. Traders are currently anticipating that the ECB could implement one or two additional 25bps cuts later this year, though much will depend on upcoming economic data and inflation trends. With the eurozone economy facing a mix of inflationary pressures and slowing growth, the ECB's future policy decisions will remain a key focal point for investors, as they try to gauge how the central bank will balance supporting growth while ensuring price stability.
What supported the currency
The combination of fiscal reforms in Germany, heightened defense spending in Europe, and a more cautious stance on monetary policy has provided a strong foundation for the euro in the near term. However, with several uncertainties still looming—especially regarding inflation dynamics and geopolitical tensions—the currency's trajectory will continue to depend on how these factors unfold over the coming months.
