Group 1 - The European Central Bank has decided to maintain interest rates, yet the euro has depreciated significantly against the dollar, primarily due to the market interpreting the recent US-EU tariff agreement as a major concession from the Eurozone, which could have a substantial negative impact on its economy [1] - The Eurozone's economic growth in the first quarter showed slight acceleration, driven by increased investment and net exports, with investment contributing 0.3 percentage points and net exports contributing 1.07 percentage points to GDP, a reversal from negative contributions in the previous year [2] - The German Federal Senate has passed a reform bill that exempts defense spending exceeding 1% of GDP from debt brake restrictions, marking a shift from cautious fiscal policy to active expansion, which is expected to support economic growth in Germany and the Eurozone [2] Group 2 - The Eurozone faces significant challenges in relying on fiscal expansion for economic growth due to structural low-growth traps and deteriorating external conditions, with weak domestic demand and high pressure on exports to the US [3] - The recent US tariff policy is expected to have a more severe impact on the Eurozone economy than previously anticipated, with the weighted average tariff rate on EU exports to the US projected to rise from approximately 1.5% to 15.2%, potentially reducing economic growth by 0.2 to 0.4 percentage points over the next year [5] - Concerns over tariff impacts have led to capital outflows from the Eurozone, despite a narrowing of the interest rate differential between the US and Eurozone, which typically would support the euro's value [6][8]

Group 1: Euro's Initial Decline and Challenges - The euro faced significant depreciation, with the exchange rate against the dollar dropping below 1.0177, marking a 20-year low due to a "triple pressure" scenario [2] - The eurozone economy, particularly Germany, is experiencing structural weaknesses, with the manufacturing PMI remaining below the growth threshold for 12 consecutive months, indicating severe economic challenges [4] - Political instability in Germany, including significant divisions over fiscal policy, has raised concerns about the eurozone's fiscal discipline [5] Group 2: Dollar's Strength and Capital Flows - The Federal Reserve's high interest rates (4.25%-4.5%) have increased the dollar's attractiveness, leading to a surge in capital inflows into the U.S. market, with $1.2 trillion entering U.S. stocks and bonds in Q4 2024, 35% of which came from the eurozone [3] - German and French institutional investors have reduced their holdings in local bonds in favor of U.S. Treasuries, further exerting downward pressure on the euro [3] Group 3: Euro's Recovery and Driving Factors - In March 2025, the euro began a strong rebound, characterized by a "V" shaped recovery, driven by changes in monetary policy expectations, fiscal stimulus measures, and a crisis of confidence in the dollar [6] - The European Central Bank's interest rate cuts and the narrowing of the interest rate differential between the U.S. and Europe have led to a reallocation of global capital towards eurozone bonds, supporting the euro's recovery [8] Group 4: Structural Issues and Long-term Challenges - Despite the euro's rebound, structural issues such as industrial hollowing and an aging population continue to pose long-term challenges for the eurozone economy [20][19] - The eurozone's energy transition and fiscal coordination difficulties hinder effective economic policy, impacting the euro's stability [21] Group 5: Geopolitical and Market Sentiment Influences - Geopolitical events and market sentiment significantly affect the euro's exchange rate, with trade tariffs and central bank policy shifts amplifying volatility [16][17] - The eurozone faces external competition from the U.S. and China, which poses additional challenges to its economic position in the global market [22]