Euro Surges Against the Dollar: What’s Driving the Rally in 2025?

As of April 2025, the euro has seen a notable rise against the US dollar, reaching a 3-year high. On April 11, the EUR/USD exchange rate hit 1.1346, marking a 2.4% year-on-year increase — a shift that has caught the attention of traders, investors, and economists alike.

But what's behind this strength in the euro? And can it last?

Key Factors Behind the Euro’s Climb

1. Expansionary Fiscal Policy in the Eurozone

Germany — often seen as the eurozone’s economic anchor — recently announced a massive public spending plan targeting defense and infrastructure. This has injected fresh optimism into the European markets and bolstered confidence in the euro.

2. US Political Uncertainty Weighs on the Dollar

The re-election of Donald Trump has introduced renewed unpredictability in US trade and economic policy. Announcements of new tariffs on European imports — even if temporarily suspended — have shaken market confidence in the dollar’s short-term stability.

3. Diverging Central Bank Strategies

While the Federal Reserve maintains high interest rates to combat inflation, the European Central Bank (ECB) has signaled a shift toward more accommodative measures. This divergence has made the euro more attractive to investors seeking long-term stability and growth potential.

Market Forecasts: Where Is EUR/USD Heading?

• UBS forecasts the euro reaching 1.16 by the end of 2025.
• Bank of America projects EUR/USD hitting 1.15 in 2025 and 1.20 by 2026, citing strong technical momentum and pro-growth policies in Europe.