The euro has surged to 1.0850 against the dollar, regaining all its losses since the 2024 U.S. election and marking its most significant rally since 2009. The currency’s impressive rise of 4.4% last week was the largest weekly jump in 15 years. Analysts attribute this growth to concerns over the U.S. economy and recent fiscal reforms proposed by Germany. While some expect the euro to gain more strength, others warn that potential U.S. tariffs and implementation challenges could limit the currency’s upward momentum.
Germany’s Fiscal Reforms Boost Investor Confidence
Germany’s plans to reform its fiscal policies have been a major factor driving the euro’s rally. The CDU/CSU-led coalition has put forward proposals to modify the strict debt brake policy and establish a €500 billion infrastructure fund aimed at stimulating economic growth and enhancing defense spending.
To implement these reforms, Chancellor-in-waiting Friedrich Merz will need a two-thirds majority, which requires cooperation from the Greens. Analysts believe that if these reforms are approved, Germany’s economic outlook could significantly improve. According to Danske Bank, “If implemented, these changes will positively impact Germany’s economy.” The bank expects parliamentary approval to be achieved next week.
Germany’s industrial production figures also contributed to the positive market sentiment. The country reported a 2% increase in production for January, exceeding expectations and further boosting confidence in the eurozone’s largest economy.
Weakening U.S. Economy and Federal Reserve Policy
Concerns over the U.S. economy have contributed to the weakening of the dollar. Rising trade tensions and disappointing economic projections have prompted investors to reconsider the “U.S. exceptionalism” narrative that previously supported dollar strength.
Federal Reserve Chair Jerome Powell recently expressed concerns about growing economic uncertainty as employment data showed signs of a cooling labor market. Additionally, the Atlanta Fed’s GDPNow model predicts a 2.4% contraction in first-quarter growth.
Cautious Approach from the European Central Bank
The European Central Bank (ECB) recently cut interest rates by 25 basis points but has signaled a cautious approach to further easing. ECB Executive Board member Isabel Schnabel warned that inflation might remain above 2% for longer than anticipated.
Analysts are uncertain whether the ECB will proceed with another rate cut in April, especially considering the central bank’s measured tone in its March statements. “Expectations for additional ECB rate cuts are becoming increasingly uncertain,” commented Boris Kovacevic, global macro strategist at Convera.
Euro’s Future: Bullish and Bearish Predictions
Financial experts remain divided over the euro’s future. Bank of America maintains a bullish outlook, citing positive sentiment and structural improvements within the eurozone. Forex strategist Athanasios Vamvakidis stated, “The market remains short on EURUSD, despite adjustments in positioning this year.” The bank forecasts the euro to reach 1.15 by the end of 2025 and 1.20 by 2026.
On the other hand, Goldman Sachs presents a more cautious perspective. The bank argues that execution risks and a resilient U.S. economy could push the euro lower. “There are still several hurdles ahead, including getting Germany’s fiscal reforms passed within a short timeframe,” said Kamakshya Trivedi, head of global FX strategy at Goldman Sachs. The firm projects EURUSD to fall to 1.02 within three months and potentially drop below parity (0.99) over the next year if U.S. tariffs widen economic divergence.
The euro’s recent surge reflects a complex interplay of factors, including economic policies in Germany, U.S. economic concerns, and the cautious stance of the European Central Bank. As the situation develops, financial analysts and investors will be closely watching for further developments. For the latest updates on the euro’s performance, visit EuroNews24.