The euro extended its surge against the dollar past the $1.09 mark, reaching its highest level in four months, with a 5% appreciation since the start of March.
Euro rises further to four-month high
The rally was driven by increasing optimism about the Eurozone’s economic outlook, as major economies pledged higher deficit spending to support growth. Germany’s leading political parties moved swiftly in coalition talks to establish a €500 billion infrastructure fund aimed at boosting infrastructure and defense investments, reinforcing expectations of stronger fiscal stimulus. Similar moves were echoed by France and Italy, which pushed for joint EU funding for economic and military support, signaling a coordinated effort to bolster growth across the bloc.
ECB policy supports euro
Further supporting the euro, the European Central Bank indicated that monetary conditions in the Eurozone are becoming less restrictive following its widely expected 25bps rate cut last week. While policymakers did not commit to an aggressive easing cycle, they hinted that additional cuts may be limited, reinforcing market expectations that the ECB’s loosening phase may soon approach its end. The relative stability in European inflation and continued resilience in the labor market added to confidence that the region’s economy could navigate a softer landing compared to its transatlantic counterpart.
Conversely, stark growth concerns in the US continued to weigh on the greenback, amplifying the euro’s gains. A series of downbeat economic data releases, including weakening labor market indicators and softer consumer spending, fueled expectations that the Federal Reserve may be forced to ease policy sooner than anticipated. Additionally, ongoing trade tensions and uncertainty surrounding the administration’s economic policies have contributed to a more cautious outlook for US growth, leading investors to reduce their exposure to the dollar in favor of alternative assets, including the euro.
Monitoring upcoming inflation data
Looking ahead, traders will closely monitor upcoming inflation data and central bank commentary for further clarity on policy trajectories, with the euro’s momentum likely to persist if European fiscal expansion continues to contrast with economic uncertainty in the US.
