The euro traded near its highest level since 2021, despite the ECB cutting its deposit rate, as investors reconsider the dollar’s dominance and anticipate increased defense spending.
- The euro traded around $1.14, near the $1.15 peak reached earlier this month.
- The euro has climbed over 5% against the dollar so far in April.
- Support came from expectations of increased defense spending, particularly in Germany.
- The ECB cut its deposit rate by 25bps to 2.25%, the lowest since early 2023.
- The ECB removed language referring to its policy stance as “restrictive.”
- The ECB warned that the economic outlook has worsened due to escalating trade tensions.
- Markets are now betting on two or three more 25bps rate cuts by the end of the year.
Despite a recent interest rate cut by its central bank, the euro is demonstrating strength. This is attributed to a combination of factors, including a shift in investor sentiment away from the dollar and toward the euro as an alternative, and expectations of increased governmental spending that will benefit the Eurozone economy. The central bank’s monetary policy shift and concerns about the economic outlook do not appear to be significantly hindering the euro’s upward trend, at least for the time being.