The euro exchange rate has reached 1.0850 against the dollar, erasing losses since Donald Trump’s election. It had its strongest weekly gain since 2009. The euro surged in March as worries about the U.S. economy grew. Germany’s new spending plans also helped boost the currency.
The euro rose 4.4% last week, hitting multi-month highs. Some experts think it will keep rising. Others warn that trade tariffs and Germany’s economic plans may slow its growth.
Germany’s New Spending Plan Lifts the Euro
Germany is making big changes to its budget. The country plans to spend more to boost growth and strengthen its military. The government led by CDU/CSU wants to loosen debt rules and start a €500 billion infrastructure fund.
These steps aim to revive Germany’s weak economy. But before they can happen, Chancellor-in-waiting Friedrich Merz needs a two-thirds majority in parliament. He will likely need support from the Green Party to get the plan approved.
“If these changes pass, Germany’s economy will be stronger,” Danske Bank said. The bank expects the plan to pass next week.
Recent data supports this outlook. Germany’s industrial output rose 2% in January. This beat predictions and is a good sign for Europe’s largest economy.
U.S. Economic Worries Hurt the Dollar
Concerns about the U.S. economy have weakened the dollar. Investors are rethinking its strength in global markets. Trade tariffs and slowing growth are major concerns.
Federal Reserve Chair Jerome Powell recently warned about economic risks. Reports also show that the U.S. job market is slowing. The Atlanta Fed’s GDPNow model predicts that U.S. growth could shrink by 2.4% in the first quarter.
This has put pressure on the dollar. Some experts now doubt that the U.S. economy can keep outperforming other countries.
ECB Uncertain About Future Rate Cuts
The European Central Bank (ECB) lowered interest rates by 25 basis points last week. But it is not sure if it will cut rates again soon.
ECB Executive Board member Isabel Schnabel warned that inflation may stay above 2% for a long time. This raises doubts about future rate cuts.
Danske Bank changed its view. “The chance of more ECB rate cuts is becoming less certain,” said Boris Kovacevic, global macro strategist at Convera.
Bank of America Predicts Euro Will Reach 1.20
Bank of America expects the euro to rise. The bank says market trends a nd better conditions in the eurozone will help.
“Despite some market changes this year, many investors still hold short positions on EUR/USD,” said Athanasios Vamvakidis, Bank of America’s forex strategist.
The bank believes the euro is still undervalued. It says the EUR/USD exchange rate is below its post-financial crisis average of 1.20. Bank of America now predicts the euro will rise to 1.15 by late 2025 and 1.20 by late 2026.
Goldman Sachs Warns Euro Could Fall Below Parity
Not all analysts agree on the euro’s future. Goldman Sachs warns that risks remain. Political delays and strong U.S. growth could weaken the euro.
“There are still major hurdles ahead, including getting these proposals approved in time,” said Kamakshya Trivedi, Goldman Sachs’ head of FX strategy.
Goldman Sachs believes that the euro’s rise is mainly due to a weaker dollar, not strong fundamentals. The bank expects the U.S. economy to grow faster than Europe’s. It also warns that new U.S. tariffs could widen the gap.
Goldman Sachs predicts EUR/USD will fall to 1.02 in three months. It even sees a chance of the exchange rate dropping below parity (0.99) within a year.
Uncertainty Remains Over the Euro’s Future
The euro’s future is unclear. Germany’s spending plan has boosted confidence, but U.S. economic struggles make things complicated. Business leaders and investors are watching closely.
Will the euro keep climbing, or will economic challenges push it down again? The next few months will be key for global markets and business stability.
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