Why the Euro's Surge to $1.18 May Signal a Hidden Risk for Your Portfolio

• Euro edges to $1.18 after US Supreme Court knocks down Trump‑era emergency tariffs.
• Eurozone PMI shows fastest private‑sector expansion since November, driving currency strength.
• Fed minutes reveal a split on rate‑cut timing, keeping the dollar under pressure.
• ECB President Lagarde reaffirms her stay, quelling leadership‑risk fears.
• Despite the bounce, the euro still faces a 0.7% weekly decline – a nuanced risk‑reward picture.

Most investors missed the fine print in the Euro’s latest rally – and that oversight could cost them.

Why the Euro’s Bounce to $1.18 Defies Recent Dollar Weakness

The euro’s march toward the $1.18 threshold is not a random walk. It is anchored in two macro‑events that reshaped the currency battlefield this week. First, the U.S. Supreme Court struck down the broad emergency tariffs that former President Trump imposed, instantly softening the dollar’s aggressive stance. Second, the eurozone’s private‑sector PMI (Purchasing Managers’ Index) surged to its strongest level since November, signaling robust economic momentum that investors can’t ignore.

What the Eurozone PMI Reveal About Underlying Momentum

The PMI, a composite gauge of manufacturing and services activity, rose to a level that marks the fastest expansion since November. Manufacturing growth accelerated at the sharpest pace since August 2025, while services activity also posted a notable uptick. In plain terms, a PMI above 50 indicates expansion; the current reading sits well above that line, confirming that firms are hiring, output is rising, and new orders are flowing in. Historically, strong PMI months precede currency appreciation because they signal higher future cash flows and a healthier trade balance.

Fed Minutes: Why Policy Divergence Keeps the Dollar on Edge

Federal Reserve meeting minutes released the same day disclosed a split among policymakers about the pace of future rate cuts. Some members argued for a more aggressive easing cycle, while others warned that premature cuts could reignite inflation. This discord creates uncertainty, weakening the dollar’s forward curve. When the Fed’s stance is ambiguous, risk‑off assets like the dollar lose their safe‑haven appeal, allowing other major currencies—especially the euro—to capture upside.

Lagarde’s Re‑Election Confirmation: Stability or Stagnation?

ECB President Christine Lagarde told the Wall Street Journal she intends to serve her full term, quashing speculation about an early exit. Market participants often price in leadership risk; a sudden change at the top can trigger volatility in bond yields and the euro. Lagarde’s commitment removes that head‑wind, reinforcing the narrative that the ECB will maintain a steady policy path, which, in turn, supports the euro’s upward trajectory.

Sector‑Level Implications: Who Wins and Who Loses?

From a sector standpoint, the euro’s strength benefits exporters with foreign‑currency earnings, such as German industrials and French luxury brands. Conversely, it squeezes tourism‑heavy economies like Spain and Greece, where a stronger euro makes inbound travel more expensive. Investors should review exposure to these sectors when calibrating their euro‑denominated allocations.

Competitor Landscape: How Are Tata, Adani and Other Global Players Reacting?

Although Tata and Adani are Indian conglomerates, their overseas earnings are denominated in dollars and euros. A weaker dollar improves the translation of U.S. revenue, while a firmer euro can erode the euro‑zone profit line. Recent earnings calls show both groups hedging more aggressively—using forward contracts and options—to lock in current exchange rates. This strategic hedging can protect margins but also adds cost, a factor investors must factor into valuation models.

Historical Parallel: The 2020 Euro Rally After US Trade Escalation

Back in late 2020, a similar US trade‑policy reversal (the removal of Section 301 tariffs) sparked a sudden euro rally. At the time, the euro rose 4% against the dollar within weeks, only to retreat as the Fed signaled a tighter monetary stance. The lesson? Currency moves triggered by policy shocks can be sharp but may lack durability without supportive monetary policy. The current environment differs because the Fed is split, not unified on tightening, giving the euro a longer runway.

Technical Snapshot: Key Levels to Watch

On the chart, the euro’s 50‑day moving average sits at $1.175, acting as immediate support. A break above $1.185 could trigger a bullish crossover, inviting momentum traders. On the downside, the 200‑day average near $1.155 remains a strong resistance zone. Traders often watch the Relative Strength Index (RSI); an RSI below 30 would indicate oversold conditions, while above 70 suggests overbought pressure.

Investor Playbook: Bull vs. Bear Scenarios

Bull Case: The dollar stays soft due to continued Fed indecision, eurozone PMI remains robust, and Lagarde’s steady hand reassures markets. In this scenario, the euro could breach $1.20, rewarding long‑position forex funds, European equity ETFs, and commodity exporters benefiting from a weaker dollar.

Bear Case: The Fed resolves its split and signals an earlier‑than‑expected rate‑cut cycle, re‑strengthening the dollar. Simultaneously, eurozone growth data disappoints, or geopolitical tensions in Europe rise. The euro could slip back below $1.15, hurting euro‑denominated bonds and exporters dependent on a strong currency.

Smart investors will position with a blend of outright euro exposure, currency‑hedged equity holdings, and selective options strategies to capture upside while limiting downside.