The euro hovered around $1.14 on Wednesday, just below the $1.15 high reached earlier this month—its strongest level since 2021—as tensions around the Federal Reserve’s independence showed signs of easing.
Euro eases below $1.15
The U.S. dollar regained modest ground after President Trump publicly stated he had no plans to dismiss Fed Chair Jerome Powell, helping to calm investor nerves. Still, the euro remains up more than 5% against the dollar in April, fueled by growing skepticism over the greenback's long-term dominance in global markets and a shift in sentiment toward the euro as a more stable alternative.
Contributing to the euro’s strength are rising expectations for increased defense spending across the European Union, especially in Germany, amid heightened geopolitical uncertainty. This potential fiscal stimulus is viewed as a medium-term boost to the eurozone’s economic resilience.
Eyes on ECB
On the monetary policy side, the European Central Bank cut its deposit rate by 25 basis points to 2.25%, as expected—marking the lowest level since early 2023. Importantly, the ECB dropped its description of policy as “restrictive,” signaling a dovish tilt as it acknowledged a deteriorating economic outlook driven by mounting global trade tensions. This shift has prompted markets to price in two to three additional 25bps rate cuts before year-end, reinforcing the view that the ECB is positioning itself for a more accommodative stance in response to growing headwinds.
