Market News

(Bloomberg) -- The euro is set for its longest stretch of monthly gains in eight years, boosted by rising confidence in Europe’s economic prospects and a hunt for alternatives to the dollar.

The common currency is up more than 3% in June, its sixth month of advances and the best stretch since 2017. It climbed to $1.1744 this week, the highest level since September 2021.

Key to the euro’s gains are bets that the Federal Reserve is only starting its interest-rate cuts while the European Central Bank is coming to the end of its easing run. While European governments are readying tens of billions of euros of extra spending, US economic data is coming in soft. Wagers on long-term dollar weakness are also getting support from speculation the next Fed chair will heed President Donald Trump’s calls for aggressive rate cuts.

“The fleeting support for the greenback, born of geopolitical tensions and its traditional safe-haven appeal, has all but evaporated,” said Antonio Ruggiero, strategist at foreign exchange and global payments firm, Convera. “The euro will continue to benefit from persistent dollar pessimism.”

Concern Trump’s trade policies could tip the nation into recession have dealt a blow to the dollar’s safe-haven image. European policymakers have called for steps to boost the euro’s global standing amid the shifting landscape.

Treasuries Rally, Dollar Slumps as Trump Eyes Powell Successor

Options traders have wasted no time leaning into the latest burst of strength.

Volumes on Thursday surged to the fifth-highest on record, according to Depository Trust & Clearing Corporation data compiled by Bloomberg. Roughly one in four bullish euro options this week targeted a move to $1.20 or higher, while options sentiment posted the ninth-most bullish repricing since at least 2005.

Full Steam Ahead

Trading volume in the euro exceeded €63 billion ($73.8 billion) on Thursday, more than quadruple the volumes seen for the yen and five times the volumes for the Canadian dollar. The euro was up 0.2% at $1.1722 as of 8:10 a.m. in London.

“It’s full steam ahead for euro bulls,” said Shoki Omori, chief strategist at Mizuho Securities Co. in Tokyo. “We’re seeing that reflected in options markets.”

This week, the euro cleared a key options hurdle at $1.17 as tensions in the Middle East receded and expectations the Fed will need to push on with rate cuts intensified.

Money markets are pricing in 61 basis points of Fed easing by year-end, compared with just 25 basis points from the European Central Bank. Traders will be looking to clues on rates from ECB President Christine Lagarde when she speaks next week at the central bank’s annual Sintra forum.

Not everyone is convinced the euro’s six-month charge will continue. According to Francesco Pesole, strategist at ING Groep NV in London, fresh catalysts are needed for the common currency to test its next milestone.

“Something needs to happen on tariffs, Treasuries or the Fed, for a run to $1.20,” Pesole said.

What Bloomberg Strategists Say...

“European currencies are best placed to transform the dollar’s weakness into strength given that the Bank of Japan is dragging its feet on further policy tightening. Even so, the euro’s journey higher will be far from linear.”

— Ven Ram, Markets Live strategist. Click here for the full piece.

Still, data showing how investors are positioning suggest there’s reason for the market to be confident about further gains. Asset managers are the most bullish on the common currency since early 2024, Commodity Futures Trading Commission statistics show. Hedge funds are also the least bearish on the euro since April.

With the ECB nearing the end of its easing cycle, “portfolio flows and reserve diversification out of the dollar may favor alternative reserve currencies such as the euro,” Oversea-Chinese Banking Corp. strategists including Frances Cheung and Christopher Wong wrote in a note.

--With assistance from Mark Cranfield.

(Updates throughout.)