Germany spares no expense to strengthen national defense, global strategists are bullish and confidence doubles: the future of the euro is looking bright!

Due to efforts to increase spending, the outlook for the Eurozone and the euro has improved, prompting global strategists to recommend buying the euro against the US dollar. Deutsche Bank and French Industrial Bank released reports on Tuesday betting that the euro will outperform the dollar, citing measures taken in Europe to support the economy and limit the potential impact of US tariffs, while the economic outlook in the US deteriorates. As these reports were released, the euro touched 1.0627 against the dollar on Tuesday, the highest level since December, as Germany announced the establishment of a special fund for defense and indicated reform in its government borrowing stance. George Saravelos, Global Head of FX Strategy at Deutsche Bank, stated, "Europe, particularly Germany, has shown unprecedented responsiveness in adjusting its fiscal stance. This flexibility not only may reduce the potential impact of upcoming tariffs, but once the tariff impacts are absorbed, it will create upward growth potential." He mentioned that announced US tariffs will have a "clearly negative impact" on the US economy. His team has set a target euro to dollar price of 1.10. Earlier, Germany announced that it will release billions of euros for defense and infrastructure investments, marking a significant shift in government borrowing controls. This has created additional optimism in the region's economy, while the US economy is losing momentum, putting pressure on the dollar. Olivier Korber of French Industrial Bank wrote on Tuesday that defense spending and progress in resolving the Russia-Ukraine conflict will benefit the euro. He stated that meanwhile, US treasury bond yields have been decreasing, but the dollar has "yet to adjust," creating further potential for the dollar to fall. French bank Credit Agricole, which accurately forecasted the euro's performance against the dollar last quarter, also believes the euro will rise, but their G10 FX Strategy Head Valentin Marinov warned that there could be a decline if there are further setbacks in trade. He said, "Recent developments make us more optimistic overall, and if they continue, it could mean we see euro strength sooner than expected." The bank predicts a year-end euro to dollar exchange rate of 1.07. As the euro rises, Citigroup strategists also had to retract their bearish recommendation on the euro on Tuesday. Strategists, including Daniel Tobon, wrote in a report on Tuesday, "The latest statements from the EU, particularly Germany, have exceeded expectations in terms of the scale and scope of defense fiscal commitments."