The euro is proof that once something becomes highly hated in the financial markets, it doesn’t take much to pick it up.
The common currency was the top G10 currency in 2025, rising 13.3% against the US dollar. It was followed by the Swiss franc, with the Australian dollar and British pound in third and fourth respectively, gaining about 7.5% each. The US dollar performed the worst.
Part of the key was the disappointing starting point for the euro. It ended 2024 at 1.02, the worst followed by a brief period in 2022 and the worst annual finish ever. This comes after years of consistently disappointing growth.
What changed in 2025 was a loosening of the fiscal purse strings, largely the result of pressure from Russia and Trump. German officials exercised a dose of restraint as they faced manufacturing threats from China as well as political threats from Russia and the United States. Internally, the rise of the AfD also required soul searching and a return to pragmatism and away from making disastrous Green-driven ideological decisions such as closing nuclear power plants.
There were some other positive points as well with the improved performance of the Spanish economy leading to a massive 49% rally in IBEX, leading the major stock market indices globally.
The re-entry of Realpolitik into Europe was a welcome development and means a renewed focus on growth-oriented policies, which have attracted large amounts of capital due to very low valuations. I think this is a trend that could continue to push the Euro to still lower levels of 1.17.
EUR per day
The ECB could be the basis for further gains in the euro in the coming year. It looks like the central bank has eased rates quickly and substantially. This is something that could start paying dividends in 2026 if it drives growth. The market has already priced in the end of the ECB rate-cut cycle and a pickup in growth could lead to talks about a rate hike.
Europe is still far from a dynamic economy but at least policymakers are now focusing on the right things. This has provided the market with the benefit of the doubt (or at least some short covering). Now comes the hard part of implementation.
