Euro Trades Near $1.20 as Currency Markets Reprice Policy Risk

The euro traded near $1.20 against the U.S. dollar on Wednesday, approaching levels not seen in several years as foreign exchange markets adjusted to changing interest-rate expectations and widening policy divergence between the United States and Europe, Reuters reported.

The move has been driven largely by broad-based dollar weakness. Investors have increasingly priced in the prospect of U.S. interest-rate cuts amid slowing growth signals and mounting concerns over long-term fiscal sustainability. At the same time, the euro has benefited from comparatively stable euro zone policy expectations and steady capital inflows into European assets.

Currency strategists cited by Reuters noted that the $1.20 level carries both technical and psychological significance. Previous moves beyond this threshold have drawn heightened attention from policymakers due to potential effects on inflation dynamics, financial conditions, and export competitiveness within the euro zone.

While the European Central Bank does not target exchange rates, officials have historically signaled sensitivity to rapid or sustained currency appreciation if it threatens to dampen inflation or disrupt economic balance. Markets are therefore closely monitoring whether continued euro strength prompts a shift in ECB communication.

The euro’s advance underscores a broader recalibration underway in global currency markets, as investors reassess relative economic resilience, fiscal trajectories, and monetary policy paths across major economies.