MARKET NEWS
Euro heads to 4-year highs: Could it reach 1.20 or higher? -
BY Piero Cingari
The euro breached the $1.17 mark on Thursday, reaching levels last seen in September 2021. This 13% year-to-date surge positions the common currency on course for its strongest annual performance since 2017 — and potentially even since 2003. The rally therefore brings the euro closer to the psychologically significant 1.20 threshold.
Since Donald Trump’s inauguration on 20 January 2025, the euro has appreciated roughly 15% against the dollar. But what are the reasons behind the euro's recent success, and how much further can it rise?
Fiscal turn in Germany is a game changer
The explanation lies in an unusual convergence of fiscal stimulus in Europe, waning confidence in US monetary policy, and a build-up of speculative dollar short positions that are fuelling the euro's ascent.
While the European Central Bank (ECB) has extended its rate-cutting cycle, the key shift underpinning the euro's strength has come from fiscal policy — particularly in Germany.
In March, the Bundestag approved a constitutional amendment exempting military and infrastructure spending from the country’s strict “debt brake” law.
This legal reform paved the way for a €500 billion infrastructure fund, earmarked for green energy, digital transformation, and regional development through 2035 — all structured off-budget to bypass debt constraints.
Simultaneously, Berlin has pledged to increase defence spending to 3.5% of GDP, aligning with NATO’s Readiness 2030 goals and the broader €800 billion ReArm Europe initiative.
US turmoil weighs on dollar sentiment
Across the Atlantic, the US economy has shown signs of softening. First-quarter GDP contracted, driven partly by a front-loading of imports ahead of new tariffs which were set to take effect in April.
However, market attention has focused more sharply on the political pressure mounting against Federal Reserve Chair Jerome Powell.
Despite Powell reiterating this week that rate cuts are premature — citing solid growth and tariff-driven inflation uncertainties — investor confidence in Fed independence has been shaken.
