Euro surges to three-year high against dollar amid US tariff turmoil

The euro witnessed one of its largest single-day rises against the US dollar and closed at a three-year high on Friday.

The common currency advanced by 2.4 percent and closed at 1.1346 US dollars on Friday, the reference rate set by the European Central Bank showed.

The latest gaining cycle of the euro has pushed the currency to a level not seen since mid-February 2022, since the value of the euro against the dollar started to take off on February 28 this year.

According to historical data of the ECB, the exchange rate for the euro to the dollar hiked by a total of nine percent since February 28 and the rise shows no signs of slowing down as the US tariff turmoil drags on.

The rise of the euro coincides with a slumping US dollar. On a trade-weighted basis, the dollar lost nearly two percent of its value and it was one of the largest single-day declines for the currency since the beginning of the millennium, noted Commerzbank's foreign exchange analyst Volkmar Baur.

The rise of the common currency of 20 out of the 27 European Union member countries started at the end of February and the pace of appreciation has accelerated since the beginning of this month.

After the short-lived euphoria on Wednesday when the 90-day tariff pause was unveiled, the US equity market and the dollar slid on Thursday.

The market realized that while the pause of the additional tariffs announced by the Trump administration means a temporary easing of the situation, nothing has changed structurally, Baur said.

The rise of the euro has been considered as a sign that the US tariff turmoil is eroding the status of the dollar as a reserve currency as investors are selling off US assets in pursuit of safe-haven assets elsewhere.

The EU has a chance to give stronger weight to the euro in global trade, German Finance Minister Joerg Kukies was quoted by Bloomberg as saying.

On the back of a stronger euro are massive plans unveiled recently by the EU and Germany.

According to a white paper published by the EU, the bloc plans to drastically increase its spending on defense, which can amount to over 800 billion euros by 2030.

Germany, the largest economy in the EU, has vowed to reinvigorate its economy by relaxing the debt brake rule and boosting spending on infrastructure.

An ING bank analyst has pointed out that the massive spending schemes will take the pressure off the ECB to continue to cut rates to support the economy.

The ECB has indicated that it is in a wait-and-see mode in terms of monetary policies.

In view of recession concerns, the US Federal Reserve is under pressure to lower interest rates.

In general, the appreciation of the euro will make European exports more expensive and slow down those exports, on which a substantial portion of the European economy depends.

As long as the US tariff turmoil lingers and uncertainties remain, the winning streak of the common currency is poised to continue for a while.