Euro Surges to 2025 High as Defense Spending Boom Derails Dollar Parity Forecasts

The euro has reached its strongest position of 2025 against the dollar, climbing 0.7% to $1.0556 on Tuesday despite new U.S. tariffs on China, Mexico, and Canada. This represents a significant 4% recovery from a two-year low just one month ago.

Major banks including Goldman Sachs, MUFG, and TD have now abandoned their predictions that the euro would reach parity with the dollar this year. Deutsche Bank also sees less likelihood of the euro falling below parity.

This currency strength comes from Europe’s massive increase in military spending, with European Commission President Ursula von der Leyen announcing potential funding of nearly €800 billion ($841 billion). Analysts view this defense investment as driving economic growth that will keep interest rates and the euro higher.

Vanguard Asset Management’s Ales Koutny believes this spending will create “more cohesion and solidarity” across Europe, supporting the euro despite debt concerns. The shift follows Trump’s messages that Europe must handle its own defense, his direct talks with Russia about Ukraine, and his conflicts with President Zelenskiy.

While Goldman Sachs still considers tariffs important for currency outlook, they’ve revised their six-month euro forecast to $1.01—still down from current levels but stronger than their previous $0.97 prediction.