The euro is approaching its strongest level in nearly four years as investors prepare for an anticipated interest rate cut by the U.S. Federal Reserve.
On Tuesday, the euro climbed as much as 0.4 per cent to $1.1813, its highest level since July 1. The common currency has gained almost 14 per cent in 2025, setting the stage for its best nine-month performance on record.
Traders are closely watching the $1.1829 level recorded in July, a breakout above that resistance level could pave the way for a run toward another key resistance level at $1.20 level.
Analysts say expectations of at least three 25-basis-point cuts from the Fed by year-end are boosting the euro’s appeal relative to the dollar.
“Relative growth forecasts, relative rates, and the overall market backdrop are all on the euro’s side, for now,” said Kit Juckes, head of FX strategy at Société Générale.
Market positioning has also reflected this sentiment. One-week risk reversals, a key gauge of investor bias, are at their strongest in a month, signalling rising demand for euro call options.
Data from the Depository Trust & Clearing Corporation shows that more than two-thirds of euro-dollar options traded on Monday were bullish, with growing appetite for strikes above $1.20.
Hedge funds are also showing increased conviction, shifting away from complex derivatives structures to straightforward long bets on the euro.
Meanwhile, Morgan Stanley strategists note that dollar positioning remains neutral, leaving room for further euro gains if the Fed validates market expectations of multiple rate cuts.
The ECB, having signalled an end to its easing cycle, is unlikely to mirror the Fed’s dovish tilt. This divergence in policy paths has strengthened the euro’s relative advantage, with investors betting the trend could extend into the final quarter of the year.