Here’s a balanced analysis:
Current Situation (as of early July 2025):
– **EUR/USD**: The Euro has strengthened from ~1.07 to **~1.08-1.09** recently, driven by:
1. **Political risks easing** (French election results reducing far-right victory fears).
2. **Dollar weakness** (soft US economic data boosting Fed rate cut expectations).
3. **ECB caution, hesitation to cut rates further? AS ALREADY “2% amid persistent inflation, as opposed to, 4.25% in UK and similar in USA.
Arguments for “Strengthened Too Much”:
1. **Export competitiveness**:
– A stronger EUR makes Eurozone exports (e.g., German machinery, French goods) more expensive globally.
– Could hurt growth in manufacturing-driven economies like Germany (already struggling).
2. **Economic headwinds**:
– The Eurozone’s growth (0.3% Q1 2025) lags behind the US (1.4% Q1). A strong EUR may further dampen recovery.
3. **Monetary policy divergence**:
– If the Fed cuts rates aggressively while the ECB pauses, EUR could overextend, creating imbalances.
Arguments Against:
1. **Inflation control**:
– A stronger EUR lowers import costs (e.g., energy, commodities), helping the ECB tame inflation (currently 2.5%).
2. **Investor confidence**:
– Reflects reduced political risk in France/EU and faith in the Eurozone’s stability.
3. **Historical context**:
– EUR/USD remains below its 2021 high (1.23) and long-term average (~1.15-1.20).
Key Drivers to Watch:
– **Interest rate spreads**: Fed vs. ECB policy paths.
– **Political stability**: EU leadership continuity, budget tensions.
– **Growth differentials**: US vs. Eurozone economic resilience.
– **Global risk sentiment**: Safe-haven flows to USD if tensions rise.
Expert Views:
– **Exporters/Manufacturers**: Likely see EUR >1.10 as “too strong.”
– **ECB/Importers**: May welcome EUR strength for inflation control.
– **Markets**: Current levels are seen as moderate—overheating would likely require EUR >1.12-1.15.
Verdict:
The Euro’s recent rise isn’t excessive **yet**, but it approaches levels (~1.10) where concerns would grow. If EUR/USD sustains above 1.10 without stronger Eurozone growth, it could become “too strong” for economic balance. Monitor **ECB rhetoric** and **Eurozone data** for signals of strain.