The Euro surged on Monday as investors assessed the possibility of increased fiscal spending across the eurozone and the chances of a peace agreement in Ukraine.
Ukrainian President Volodymyr Zelensky received a warm reception in Britain following a disastrous meeting with US President Donald Trump on Friday. British Prime Minister Keir Starmer stated on Sunday that European leaders had agreed to draft a peace proposal to present to Washington.
Meanwhile, the Kremlin remarked on Monday that Zelensky would need to be compelled to pursue peace.
The Euro rose 0.85% to $1.0464 on Monday, rebounding from Friday’s low of $1.0359, Reuters reports.
Meanwhile, European Commission President Ursula von der Leyen announced that she would brief EU member states on Tuesday regarding plans to enhance the European defence industry and strengthen the bloc’s military capabilities.
Analysts suggested that a potential peace agreement in Ukraine, along with an expected rise in fiscal spending by eurozone nations, could stimulate future growth and strengthen the Euro.
“A paradigm shift appears to be taking place in Germany,” said Robin Winkler, chief economist Germany at Deutsche Bank.
“Even if spent over 10 years, this would be about as much money as the country has invested in East Germany since reunification,” he added.
Parties involved in negotiations to form Germany’s new government are reportedly exploring the rapid creation of two special funds, one for defence and another for infrastructure, potentially amounting to hundreds of billions of Euros, according to three sources cited by Reuters.
Furthermore, Deutsche Bank has shifted to a neutral stance on the Euro/Dollar, highlighting potential upside risks from a significant shift in German fiscal policy.
The single currency strengthened against other safe-haven currencies, including the Japanese Yen and the Swiss Franc. It climbed 1.3% to 158.30 against the Yen and rose 0.68% to 0.9433 against the Swiss Franc.
“It is ever more clear that Europe urgently needs a plan to ensure undisrupted support for Ukraine,” according to Minna Kuusisto, chief analyst of global macro and geopolitics at Danske Bank.
“We argue that arming Ukraine is by far the cheapest option for Europe,” she added.
Analysts suggest that a targeted application of US tariffs on essential imports would have a milder impact compared to a blanket 25% tariff on all EU exports to the United States.