Introduction to Euro’s Rise
The euro has increased over 10% compared to the US dollar since January and reached $1.1369 per euro on Monday (April 14). A large part of the euro rally is due to a flight from the dollar resulting from the protectionist trade policy of US President Donald Trump, including steep tariffs of 145% on China. The 20-member eurozone recovered from a slight recession in 2023 with growth of 0.8% last year and a projected expansion of 1.3% in 2025. However, US tariffs for imports from the European Union are threatening 20%.
European Recovery and Investor Confidence
In view of European recovery due to economic uncertainty, many foreign investors are changing capital from the dollar into European stocks and bonds, strengthening the value of the euro. The strength of the euro is also being fueled by different monetary policies. The European Central Bank (ECB) has responded several times to persistent inflation in parts of the eurozone, while the Fed kept interest rates higher, causing investors to prefer the euro.
US Eurozone Interest Gap
The serious currency fluctuations of 10% are relatively rare in just months, and the euro is increasingly regarded in these turbulent geopolitical times as a counterweight to the dollar, since fears grow that Trump’s tariffs could lead the US economy into a recession. "Trump undermines confidence in the rationality of the US political decision, the long-term prospects for the growth of the United States, and the sustainability of its public finances," said an economist. As a result, the dollar loses part of its value, but the euro is not a real alternative.
Potential Damage to Global Economy
The damage that Trump’s commercial agenda could cause in the global economy could weigh on the growth of the eurozone and require the ECB to react with more tariff cuts. Oxford Economics estimates that if Trump imposes 20% tariffs on EU exports, the growth of the eurozone could decrease by up to 0.3 percentage points this and next year.
Germany’s 1 Trillion € Stimulus
The massive expenses for defense, infrastructure, and climate protection, which were approved by Parliament at the beginning of this month, will include significant €1 trillion (1.13 trillion dollars) in the next decade. The announcement has further strengthened the trust of investors in the euro and reinforced the latest rally in the currency by signaling long-term economic support in the center of the eurozone.
Impact on Investors and Economy
Much of the German editions are financed through new bonds, which increases the income and attracts foreign investors. Commerzbank, the second-largest lender in Germany, predicts that the country’s debt quota in the next decade could increase to 90% of gross domestic product (GDP), which would make the euro-depreciation more tempting. Goldman Sachs predicted last month that the massive incentive would increase Germany’s GDP by a complete percentage point and growth of the eurozone by 0.2% percentage points next year.
Common Bonds for Eurozone
In view of these ambitious plans for military spending, there is a growing call to issue a common debt in the Eurozone, which is often referred to as Eurobonds. Common bonds are a strength that is worth strengthening. The creation of Eurobonds is supported by southern EU countries, but rejected by northern EU members, including Germany.
Advantages and Disadvantages of a Stronger Euro
The current strength of the euro is initially a blessing for consumers and companies that can buy products at lower prices. Tourism in the USA from Europe has also become a little cheaper, while raw materials in dollars such as oil and gas have become more affordable. However, some European exporters may feel that the effects of their goods become a little more expensive for the rest of the world. Germany is the most susceptible to the strength of the euro, since around half of its GDP are exports.
Conclusion
While some currency retailers predict that the euro could further strengthen the Greenback before the end of the year, most important investment banks predict that it will remain at the current level. At the moment, everything is extremely uncertain, and it is unclear whether the euro will continue to increase compared to the dollar or remain at the current level.
