Euro Capped by Dollar Strength Despite German Support

The euro has recently received support from Germany’s expansionary fiscal policy and increased capital diversification flows, but the strength of the US economy continues to limit the potential for a major bullish trend against the dollar. According to Rabobank, after Germany relaxed its debt restrictions, the euro delivered one of the strongest performances among G10 currencies in the second quarter, attracting renewed interest from global investors.

However, the broader macroeconomic picture in the United States remains favorable for the dollar. The Federal Reserve has recently revised up its growth forecasts for 2025 and 2026, signaling resilient consumer demand and rising investment activity. These factors are likely to sustain capital inflows into dollar-denominated assets and prevent further meaningful weakening of the US dollar.

In this context, Rabobank believes that while the euro benefits from supportive domestic drivers, the relative strength of the US economy will prevent EUR/USD from entering a sustained bullish rally. Instead, the bank expects the pair to trade largely within a range through 2026 rather than embarking on a strong and lasting upward trend.