The euro is to reverse its losses sustained against the dollar during the fourth quarter of 2024 as the curtain draws to a close on ’American exceptionalism.’
“We project that the EUR/USD will end the year near 1.10, marking a reversal of the ’American exceptionalism’ story of Q4 2024,” Macquarie economists said in a note Tuesday.
The euro fell to a two-year low against the dollar at the start of the year, following a sharp sell in Q4 on mounting concerns about the Eurozone’s economy and the impact of President Donald Trump’s tariffs.
But the eurozone economy is making a comeback, powered by Germany’s fiscal bazooka after the incoming administration passed a colossal defence and infrastructure spending plan potentially worth up to €1 trillion. The German fiscal boost has already helped boost sentiment on the economy, according to recent survey data.
Germany’s Ifo survey showed an uptick in business expectations, with the index rising from 85.6 to 87.7 in March, reaching its highest level since last spring. This improvement reflects growing optimism about the impact of fiscal reforms on future economic activity and higher real interest rates in Europe.
While the current business climate in Germany saw only a modest improvement, climbing to 85.7 from 85.0 in February, the forward-looking expectations index surpassed the current assessment index. This crossover suggests a potential turning point for the European economy.
“Should this optimism hold up, it is highly unlikely that the EUR/USD will revisit the depths of earlier this year. Recent gains will hold up, and more may be forthcoming when the actual hard data in Europe improves,” Macquarie added.
