Key Takeaways

  • Reversing unexpected weakness in Q1, the euro made strong gains in April, resuming its secular uptrend.
  • The euro’s gains were fueled by: rising US interest rates topping out; EU/Germany’s fiscal expansion plans; signs of a EU pandemic recovery; and technical euro “buy” signals.
  • Global investors’ “reflation trades” are back in favor, increasing demand for the euro.


Spot (mid-market) rate = $1.2120 (2:00pm, April 29, 2021)


The euro is rallying strongly against USD. The euro suffered a 3% fall in Q1 and began April at its lowest level of the year, near $1.17. Since then, it has raced higher with seldom a pause (along with the other G-10 currencies) to where it trades today.  A growing number of analysts are now predicting EUR/USD will reach $1.23 before the end of Q2 and resume its long-term uptrend in earnest in H2.

G-10 Currency Spot Returns (%) vs USD April 2021


Several themes have been driving the value of the EUR higher this month:

US bond yields struggle to move higher. In Q1, US bond yields rose to levels much higher than expected, which halted the secular decline in the dollar and drove it relentlessly higher throughout the quarter. In April, however, the rise in yields has stalled, sparking a broad sell-off in the dollar/ rally in the euro and virtually every other foreign currency. Only the Argentine peso, Indian rupee, Peruvian sol and Colombian peso declined in value in April.

EU gets ready for €750bn recovery plan rollout. This week, Germany, France, Italy and Spain plan to present proposals on spending their respective allocations of the €750bn EU recovery fund.1 EU officials are expected to approve the proposals and send money to each EU country by end of Q3. This stimulus is expected to fuel an economic expansion in the EU and a stronger euro.

Germany’s Green Party may boost fiscal spending. The Green Party has seen an unexpected rise in polls ahead of September’s general election when Angela Merkel retires. Although not yet assured, the Greens could emerge as either a junior partner or even leader of the next governing coalition. The Green Party proposes €50bn per year (1.5% of German GDP) in extra fiscal stimulus, pushing the country and EU toward the US model of hard-hitting government stimulus, and driving both German interest rates and the euro higher.2

"We predict that the euro will continue
to move higher against the US dollar, more so in H2 than Q2."

Improved vaccine rollouts in Europe. Recent reports indicate that vaccinations in the EU are improving and are closing the gap (per population) with both the US and UK.3 Yesterday, health officials in Germany reported that 1.1 million vaccine doses were administered.4

EU/UK Brexit drama is mostly over. Earlier this week, EU lawmakers signed the EU-UK Trade and Cooperation Agreement, marking the final step in the post-Brexit ratification process.5 The accord will ensure that trade/commerce will continue without the chaotic disruption to business that a “no-deal” Brexit once threatened. However, London and Brussels are still wrangling over how the accord will work in Northern Ireland.

ECB not so concerned with euro strength. Last week, ECB President Lagarde said “we don’t target a level of exchange rates,” although, she added “we monitor very carefully changes in the exchange rate. We are attentive to that.”6 So, the idea of significant pushback from the ECB from a stronger EUR is highly unlikely, as long as the move is orderly and justified by fundamentals.

The TECHNICALS. The extended rally in the EUR/USD over last two weeks has triggered several medium to long-term bullish signals. The 50-day moving average of the EUR/USD rate has crossed up and over its 200-day moving average. All three key moving averages (20-, 50- and 200-day) are now rising simultaneously and the solid up-move through the currency pair’s downtrend line that’s been in place since the start of the year.

Final comments

We predict that the euro will continue to move higher against the US dollar, more so in H2 than Q2. Its strength will be fueled by a combination of themes related to stalling US bond yields, expanding EU/German fiscal spending, winning the battle against the pandemic, and investors increasingly embracing the global “reflation trade” narrative amid a post-pandemic global recovery.

If you’d like to discuss your specific situation or for more analysis on FX markets or information regarding SVB's FX services, contact your SVB FX Advisor or the SVB FX Advisory Team at​

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Scott Petruska, CFA
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1 “France and Germany push for quick approval of EU states’ recovery plans.” April 27, 2021

2 “A Green Germany could pump up Europe’s fiscal push.” WSJ. April 28, 2021

3 “EU countries ready to start using J&J shot as deliveries resume.” Reuters. April 21, 2021

4 “Germany gives record Covid vaccinations of 1.1 million shots on Wednesday.” Bloomberg. April 29, 2021

5 “Parliament formally approves EU-UK Trade and Cooperative Agreement.” April 28, 2021

6 “Christine Lagarde: Interview with CNBC - European Central Bank.” ECB. April 12, 2021.

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