Euro Surges Amid Focus on Ukraine Peace Talks and Rising Defence Budgets

(Reuters) – The euro surged on Monday as investors reacted to renewed prospects of a peace deal in Ukraine and potential increases in defense spending across the eurozone.

Ukrainian President Volodymyr Zelenskiy received a warm reception in Britain following a turbulent meeting with U.S. President Donald Trump on Friday. UK Prime Minister Keir Starmer announced on Sunday that European leaders had agreed to draft a peace proposal to present to Washington, fueling optimism in the markets.

The euro climbed 0.6% to $1.0439, rebounding from Friday’s low of $1.0359.

Analysts believe that a potential peace deal in Ukraine, coupled with increased fiscal spending by eurozone nations, could bolster economic growth and strengthen the euro.

Germany Signals a Shift in Fiscal Policy

“A paradigm shift appears to be taking place in Germany,” said Robin Winkler, Chief Economist for Germany at Deutsche Bank.

He referenced a Reuters exclusive on Germany’s spending plans, stating, “Even if spent over ten years, this would be about as much money as the country has invested in East Germany since reunification.”

According to sources familiar with the matter, Germany’s coalition talks include discussions on establishing two special funds worth hundreds of billions of euros—one for defense and another for infrastructure.

Deutsche Bank recently shifted to a neutral stance on the euro/dollar pair, citing potential upside risks from Germany’s evolving fiscal policy.

Urgent Need for Ukraine Support

Minna Kuusisto, Chief Analyst for Global Macro and Geopolitics at Danske Bank, emphasized Europe’s growing responsibility in supporting Ukraine.

“It is ever more clear that Europe urgently needs a plan to ensure uninterrupted support for Ukraine,” she said, warning that the risk of the U.S. cutting off aid is increasing.

“We argue that arming Ukraine is by far the cheapest option for Europe,” Kuusisto added.

Trade and Currency Movements

Meanwhile, concerns over trade tensions persisted after Trump floated the idea of a 25% “reciprocal” tariff on European cars and other imports. Analysts believe that a selective implementation of U.S. tariffs would have a smaller economic impact than a blanket 25% tariff on all EU exports.

The U.S. dollar index, which measures the greenback against six major currencies, dipped 0.25% to 107.03.

“We remain bullish on the dollar ahead of next month’s round of tariffs, but if we’re correct in expecting a delay and softer U.S. data, this could be a weak week for the greenback,” said Francesco Pesole, Forex Strategist at ING.

Bitcoin and North American Markets React

Bitcoin surged back toward $95,000 after Trump announced that the token would be included in a new strategic cryptocurrency reserve. It was trading at $92,077 at the time of writing.

“This was clearly a positive shock to the crypto market, providing a much-needed catalyst to break the bearish trend,” said Chris Weston, Head of Research at Australian online broker Pepperstone.

In North America, the Canadian dollar and Mexican peso each gained about 0.30%, trading at C$1.4428 and 20.445 pesos per U.S. dollar, respectively, as negotiations between Canada, Mexico, and the U.S. continued.

U.S. Treasury Secretary Scott Bessent urged Canada to align with Mexico in matching U.S. tariffs on Chinese goods, signaling further trade policy developments in the coming weeks.