The European currency hits "peaks" - Why is the euro's rise to $1.20 an important issue?
The euro has just reached a new historical milestone against the US dollar. The European single currency has reached its highest levels since 2021, at just over $1.20. But the road to this level has been rocky, as the euro approached the level in September before easing as the dollar recovered.
However, since falling to lows of $1 a year ago, the euro has strengthened, helped by European fiscal stimulus led by Germany. Historically, the $1.20 level is slightly above the average for the single currency since its inception in 1999. But it is far below the $1.60 it reached in 2008.
The main reasons are well-known: US President Donald Trump's confrontations with allies over trade, Greenland and attacks on the Federal Reserve have weakened the dollar.
The euro's recent gains came as speculation about joint US-Japanese intervention to stem the yen's weakening depreciates the dollar. Efforts to boost the eurozone's security and long-term growth efforts, particularly in Germany, as well as a desire to diversify away from the dollar have helped.
The impact of renewed currency strengthening, making exports more expensive abroad, may start to show in revenues.
ECB officials are usually more interested in the speed and scale of currency movements than the level. They may be paying attention, as the euro rose about 2% last week, its biggest weekly gain since April, when Trump's sweeping tariffs sparked global turmoil.
Further appreciation of the euro could put downward pressure on import prices. The ECB already expects to miss its 2% inflation target this year and next. The dollar accounts for just under 60% of global foreign exchange reserves, compared with the euro’s roughly 20%. The US’s dominance in global trade and its deep capital markets mean that this is unlikely to change anytime soon.
ECB President Christine Lagarde argues that erratic US economic policy means the euro can play a greater global role.
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