The euro is expected to achieve its best weekly performance since 2009! Traders bet that the upward trend will continue

According to Zhitong Finance APP, after Germany's historic commitment to increase defense and infrastructure spending, the euro is expected to achieve its best weekly performance since 2009. Data shows that on Friday, the euro rose by 0.8% against the US dollar, reaching 1.0871, the highest level in four months. The euro has accumulated nearly a 5% increase against the US dollar since the beginning of this week.

Meanwhile, data from the US Depository and Clearing Corporation shows that the trading volume of euro against US dollar options hit a record high on Wednesday, with 70% of the positions being bullish for the week, compared to an average of just above 50% in February. It is reported that options traders are betting that the euro to US dollar exchange rate will rise to 1.10 and may break through 1.20 next year.

Germany's incoming Chancellor Merz stated earlier this week that Germany will amend its constitution to exclude defense and security spending from fiscal spending limits and will spare no effort to defend the country. He mentioned plans to establish a €500 billion (approximately $528 billion) infrastructure fund to invest in priority areas such as transportation, energy networks, and housing over the next ten years, with the support of potential coalition partners.

European Commission President Ursula von der Leyen also proposed an €800 billion military spending plan to seek to strengthen its defense capabilities. Von der Leyen stated that Europe is prepared to significantly increase defense spending and will provide member states with €150 billion in loans for defense investment, while also indicating that nearly €800 billion can be mobilized to create a secure and resilient Europe.

With expectations that increased spending by Germany and other eurozone countries will boost the eurozone economy, the euro has risen accordingly. Additionally, strategists point out that as Germany and the EU arrange hundreds of billions of euros in funding, the necessity for the European Central Bank to continue cutting interest rates to stimulate economic growth has decreased. This is also one of the reasons for the recent strength of the euro.

As the euro strengthens recently, Bank of America strategists have also raised their expectations for the euro, predicting that the euro to US dollar exchange rate may rise by about 6% to 1.15 by the end of the year. Led by Michalis Rousakis, Bank of America strategists stated: "The fiscal spending plan announced by Germany is a watershed moment for the euro. Meanwhile, policy uncertainty poses downside risks to US economic growth."