Euro heads to 4-year highs: Could it reach 1.20 or higher?

The euro breached nan $1.17 people connected Thursday, reaching levels past seen successful September 2021. This 13% year-to-date surge positions nan communal rate connected people for its strongest yearly capacity since 2017 — and perchance moreover since 2003. The rally truthful brings nan euro person to nan psychologically important 1.20 threshold.

Since Donald Trump’s inauguration connected 20 January 2025, nan euro has appreciated astir 15% against nan dollar. But what are nan reasons down nan euro's caller success, and really overmuch further tin it rise?

Fiscal move successful Germany is simply a crippled changer

The mentation lies successful an different convergence of fiscal stimulus successful Europe, waning assurance successful US monetary policy, and a build-up of speculative dollar short positions that are fuelling nan euro's ascent.

While nan European Central Bank (ECB) has extended its rate-cutting cycle, nan cardinal displacement underpinning nan euro's spot has travel from fiscal argumentation — peculiarly successful Germany.

In March, nan Bundestag approved a law amendment exempting subject and infrastructure spending from nan country’s strict “debt brake” law.

This ineligible betterment paved nan measurement for a €500 cardinal infrastructure fund, earmarked for greenish energy, integer transformation, and location improvement done 2035 — each system off-budget to bypass indebtedness constraints.

Simultaneously, Berlin has pledged to summation defence spending to 3.5% of GDP, aligning pinch NATO’s Readiness 2030 goals and nan broader €800 cardinal ReArm Europe initiative.

US turmoil weighs connected dollar sentiment

Across nan Atlantic, nan US system has shown signs of softening. First-quarter GDP contracted, driven partially by a front-loading of imports up of caller tariffs which were group to return effect successful April.

However, marketplace attraction has focused much sharply connected nan governmental unit mounting against Federal Reserve Chair Jerome Powell.

Despite Powell reiterating this week that complaint cuts are premature — citing coagulated maturation and tariff-driven ostentation uncertainties — investor assurance successful Fed independency has been shaken.

According to BBVA analysts: "Jerome Powell is not leaning toward a complaint trim arsenic soon arsenic July, though location is an soul statement astatine nan Fed astir nan timing of nan adjacent complaint cut, and it whitethorn good proceed to grow."

They added that nan dollar’s weakness has deepened "amid reports that US President Donald Trump is considering selecting and announcing a replacement for Fed Chair Jerome Powell by September aliases October". This is contempt nan truth that Powell’s word is group to extremity successful May 2026.

Markets construe this arsenic a imaginable "shadow chairman" scenario, wherever personification down nan scenes could support liking rates low, thereby putting antagonistic unit connected nan dollar.

Euro-dollar outlook: What analysts are watching

Francesco Pesole, expert astatine ING, underscored nan increasing relevance of upcoming US employment data.

“News connected nan jobs marketplace has important effect imaginable now that ostentation figures for May person grounded to trigger a dovish consequence by Powell. The rationale could beryllium that if thing moves connected nan 2nd portion of nan instruction (full employment), a fewer much FOMC members could subordinate nan dovish ranks contempt ostentation concerns.”

He noted that markets presently value a one-in-four chance of a complaint trim connected 30 July and 62 ground points of easing by nan extremity of nan year.

Meanwhile, investor positioning continues to steer euro-dollar movements.

Matthew Ryan, Head of Market Strategy astatine Ebury, said: “EUR/USD is almost wholly driven by rising dollar shorts, alternatively than a much affirmative outlook for nan communal bloc’s economy.” In different words, nan euro is rising against nan dollar because investors are betting against nan greenback, alternatively than placing much religion successful nan euro.

Technical indicators besides constituent to continued momentum. Luca Cigognini, expert astatine Intesa Sanpaolo, commented: “The short-term building of EUR/USD remains mostly bullish. A break supra 1.1717, now a guidance level, could push nan euro toward 1.1750, raising nan adjacent target to 1.1800/1.1820.”

Beyond those levels, traders are eyeing guidance astatine 1.1910 — nan highs of August 2021 — followed by nan psychological obstruction astatine 1.20.

Higher targets see 1.2350 (January 2021) and 1.2550 (February 2018), but overmuch will dangle connected really economical indicators and governmental developments germinate successful nan 2nd half of nan year.