The euro has just surpassed the $1.20 mark against the U.S. dollar, a level that marks its strongest position since 2021 and caps a sizeable recovery from lows near $1.00 a year earlier. Traders often focus on such round-number milestones, and the move to just above $1.20 has renewed attention on the single currency as market sentiment toward the dollar softens.
Market observers note that the euro’s recent momentum followed a roughly 13% gain over the previous year - its best annual performance against the dollar since 2017. That ascent stalled briefly last autumn when the euro approached this threshold in September and then eased as the dollar regained some ground. Still, the currency’s rebound from near-$1 lows last year has been supported in part by fiscal stimulus initiatives in Europe, particularly measures driven by Germany aimed at boosting security and long-term growth.
Historically, the $1.20 level sits just above the euro’s average exchange rate since the currency’s inception in 1999. By contrast, it remains substantially below the highs seen in 2008 when the euro reached around $1.60.
Drivers behind the euro’s advance
The move to $1.20 has been attributed primarily to strains on the dollar. A range of high-profile confrontations and comments by U.S. political figures have dented confidence in the greenback - including disputes over trade, disagreements involving Greenland, and direct criticism of the Federal Reserve. In addition, recent market conjecture about coordinated U.S.-Japanese intervention to support the yen has contributed to broad dollar weakness, aiding the euro’s rise.
Political signals within Europe have also played a role. European Central Bank Vice President Luis de Guindos identified the $1.20 area as a level that could present difficulties last year, drawing particular attention to the threshold. Meanwhile, broader initiatives in Europe intended to diversify away from dollar reliance and strengthen the region’s economic foundation have supported the single currency.
Impact on companies and markets
Stronger currency values tend to weigh on exporters because they make goods priced in euros more expensive for overseas buyers. That dynamic could begin to appear in upcoming corporate earnings reports. Large segments of European equity markets are exposed to currency shifts: Goldman Sachs estimates that firms in the STOXX 600 derive about 60% of their revenue from overseas markets, with nearly half of that coming from the United States. Despite this exposure, equity investors have largely overlooked currency effects to date amid a generally brighter economic outlook. Analysts point out that European earnings did contract last year, and Barclays estimates that the euro’s appreciation explained roughly half of the earnings-per-share downgrades seen in that period.
Where the ECB fits in
Officials at the European Central Bank typically focus on the speed and scale of foreign exchange movements rather than the absolute level of the currency. The ECB is likely to take note of rapid moves - the euro rose about 2% in the most recent week, which represented its largest weekly advance since April, when prior U.S. tariff measures triggered market turmoil. That said, policymakers may be somewhat reassured that the current appreciation has been more gradual since last summer than the sharper surge seen in the previous spring.
Further gains in the euro could place downward pressure on import prices and make it harder for the ECB to reach its inflation goals. The central bank already expects to miss its 2% inflation target this year and the next, so exchange rate developments will be relevant to its policy considerations.
Reserve currency questions
Speculation that the euro could quickly challenge the dollar’s dominant role in global reserves should be tempered. Despite the euro’s recent strength, the dollar still represents just under 60% of global currency reserves, while the euro accounts for roughly 20%. The dollar’s entrenched position is supported by the scale of U.S. trade and commerce and the depth of its capital markets, factors that suggest any major shift in reserve composition would be slow.
European leaders have argued that erratic U.S. economic policy could create opportunities for the euro to expand its international role. However, such a shift would require substantial progress in establishing a more complete European financial architecture - a process that has been paused for some time.
For markets and corporate analysts, the euro’s climb to the $1.20 region is a concrete development to monitor. It influences exporters, affects projected earnings for multinational firms, and intersects with central bank inflation calculations - yet it does not on its own signal an imminent overhaul of global reserve currency dynamics.