The euro surged past the $1.17 threshold on Friday, reaching its highest exchange rate since 2021 as broad dollar weakness and rising economic confidence in the Eurozone lifted the common currency.
According to FX trading data at the market close, the EUR/USD pair climbed to nearly $1.17, marking a four-year peak. The euro has now appreciated by 3.98% over the past month and 9.61% on a year-over-year basis.
Economically, Germany’s Ifo Business Climate Index reflected the most optimistic sentiment in nearly a year, further fueling bullish sentiment. However, flash PMIs indicated a mixed performance across the Euro Area, with some signs of stabilization in private sector activity.
On the monetary policy front, investors are increasingly pricing in a 25-basis-point interest rate cut from the European Central Bank (ECB) before year-end. ECB President Christine Lagarde commented that current interest rate levels place the bank in a strong position to navigate ongoing economic uncertainty. Likewise, Governing Council member François Villeroy de Galhau echoed the possibility of a rate reduction within the next six months.
Elsewhere, NATO’s commitment to elevate defense spending targets to 5% of GDP by 2035—up from the current 2%—has intensified expectations that member nations, notably Germany, will turn to increased borrowing to meet funding obligations.
On the fiscal front, the German government has ratified its 2025 national budget and the fiscal framework for 2026, incorporating record levels of public investment aimed at stimulating economic growth. These measures are set to be implemented more rapidly than initially planned.
Confidence within the Euro Area services sector also showed improvement, with the services sentiment index rising to 2.9 in June—up from 1.8 in May and exceeding forecasts of 1.6. The rise aligns with recent surveys indicating a resurgence in service-sector optimism, driven by enhanced investment pledges from Eurozone governments and reduced concerns over trade friction with the United States.
Additionally, assessments of business activity over the last three months improved significantly, rising to 3.5 in June from 1.8 in May. However, caution lingered, as expectations for future demand dipped slightly.
