The Euro’s Surge: Strategic Shifts and Policy Concerns
- admin cys
- Jul 10
- 2 min read
A Report by CYS Global Remit Counterparty Sales & Alliance Unit
The euro has recently strengthened significantly, outpacing several major currencies including the US dollar, Swedish krona, Norwegian krone, and British pound. According to a recent analysis by UBS, this bullish run is driven by a combination of macroeconomic factors and geopolitical developments—most notably, the expected ending of the European Central Bank’s (ECB) monetary easing cycle, proactive fiscal reforms in Germany, and a successful NATO summit that bolstered confidence across European markets.
With the euro approaching $1.18 and marking nearly a 14% gain against the dollar year-to-date, investor interest in European assets has surged. This shift reflects a broader global sentiment, with rising political uncertainties in the U.S.—particularly concerns over Federal Reserve independence and protectionist policies voiced by former President Trump—contributing to the dollar's recent decline, which is now around 96.83.
UBS analysts suggest that the euro’s rally may have peaked in the near term. Their baseline outlook indicates EUR/USD could remain within a 1.15 to 1.20 range throughout the second half of the year. As such, they advise investors to consider reducing exposure to the dollar during any further dips and to explore opportunities in other currencies, especially Scandinavian ones like the SEK and NOK, which are expected to remain relatively strong.
ECB’s Dilemma: Too Strong Can Be a Problem
Despite the market’s enthusiasm, some voices within the ECB are increasingly worried about the consequences of a persistently strong euro on the eurozone’s fragile recovery. While a strong euro helps curb inflation caused by imported goods, it also poses risks: it can dampen export competitiveness and hinder economic growth, especially amid ongoing global trade tensions and potential US tariffs targeting European exports.
During recent discussions in Sintra, Portugal, ECB President Christine Lagarde voiced concerns that the dollar’s recent weakness signals a fundamental shift—“something that has been broken,” she said, questioning whether the US dollar's role as the dominant global reserve currency can be sustained amid rising political tensions, fiscal deficits, and White House interference.
The Broader Outlook
Looking ahead, investors will be closely watching the euro’s behaviour amid ongoing global and domestic uncertainties. While the fundamentals support a stabilizing euro, risks remain—if economic growth slows or inflation remains weak, the rally could stall. The ECB faces a delicate balancing act: supporting the recovery without inadvertently tightening monetary conditions through a runaway euro.
UBS’s advice to shift away from dollar-heavy positions into more stable currencies like the Scandinavian krona offers a tactical pathway forward. Ultimately, while the euro is expected to stabilize rather than continue its ascent, the currency story is far from over shaped by transatlantic politics, trade tensions, and evolving monetary policies.
