Euro Climbs Past $1.16: Holiday Savings and Cheaper Groceries, Export Squeeze

A short spell of weakness has ended: the euro has reclaimed the $1.16 threshold and, for now, refuses to give it up. The move matters to households in Portugal not only because it reshapes holiday budgets for Florida or online shopping bills in dollars, but also because it hints at where inflation, mortgage costs and export competitiveness might be headed next.

Quick Glance: what just changed?

• EUR/USD rallied to 1.1647 in early-morning trading after three sessions in the red

• Official ECB reference rate from 4 December was 1 euro = $1.1666

• The single currency is up 0.9 % in the past month and more than 10 % in 12 months

• Diverging monetary paths – the Fed is leaning dovish while the ECB stays put – fuel the move

• Stronger euro is disinflationary for imports but an extra head-wind for exporters from Aveiro to Stuttgart

Momentum shift on the trading floor

After drifting lower since late November, the common currency staged a sharp reversal overnight. By mid-morning in Lisbon, spot quotes hovered near $1.165, the highest since mid-October. Dealers say a cluster of stop-loss orders above 1.1600 added propulsion, while thin pre-weekend liquidity exaggerated swings. The euro’s rebound comes despite November’s weak manufacturing PMI, underscoring that interest-rate expectations, rather than data noise, currently set the tone.

A glance at the scoreboard explains why: futures markets now price an 86 % chance of a Fed cut at next week’s meeting, yet see virtually no action from the ECB until well into 2026. That yield differential, once the dollar’s friend, is narrowing fast.

Why the upward jolt happened

Economists point to a cocktail of factors:

Policy divergence – The Federal Reserve is signalling openness to trim rates after a soft ADP jobs report showed private payrolls contracting by 32 000. Christine Lagarde, by contrast, spent most of her recent Frankfurt press conference stressing that current borrowing costs are “broadly appropriate”.

Inflation dynamics – Core inflation in the euro area is still flirting with the 2 % target, while US price growth decelerates faster. That forces Washington to consider easing sooner than Frankfurt.

Trade flows – Eurozone’s trade balance swung to a €19.4 bn surplus in September, helped by record chemical shipments. A surplus naturally generates demand for euros on settlement day.

Positioning – Hedge-fund data compiled by the CFTC showed the largest net long euro stance since April. Any hint of good news triggers fresh buying.

Every element above pushes in the same direction: a firmer euro. Whether it lasts will depend on the next batch of US labour numbers and the ECB’s March projections.

What this means for Portugal

For Portuguese families, a stronger euro is double-edged:

• Cheaper fuel and food imports: crude oil, maize and soybeans are billed in dollars; a higher EUR/USD cushions local pump prices and supermarket shelves.

• Holiday gains: a €3 000 Florida vacation now costs roughly $3 494 instead of $3 582 a month ago, saving almost €80.

• Export pinch: footwear makers in Felgueiras or wine producers in the Douro Valley invoice heavily in dollars. Each 10 % euro appreciation can trim sales volumes by 1.5-3 % over time, ECB studies show.

• Inflation outlook: a stronger currency helps the Banco de Portugal’s forecast that consumer-price growth will slide toward 2.2 % next year, potentially allowing domestic lenders to start advertising lower variable-rate mortgages by summer.

Counting the caveats

While talk of €1 = $1.19 by late 2026 circulates on trading desks, several risks linger:

– A sudden US fiscal deal that eases political gridlock could lift Treasury yields and prop up the dollar.

– If European industry continues to contract – November PMIs showed Germany still shrinking – investors might doubt the ECB’s resolve and rotate back into higher-yielding US assets.

– Any flare-up in geopolitical tensions that drives a flight to safety would typically favour the greenback.

The road ahead

Analysts at three of the biggest Lisbon banks agree on one point: volatility, not direction, is the safer bet for 2026. BNP Paribas forecasts 1.17 for the end of Q1 but warns of “whiplash moves” around each central-bank meeting. BPI’s team expects sideways trading near 1.16 until clear evidence emerges that the Fed is really cutting. Santander sees scope for 1.19 over 12 months, provided euro-area inflation refuses to fade.

For now, Portuguese consumers can breathe a little easier at the checkout, while exporters may need to sharpen their pricing strategies. Just don’t assume the currency market has made up its mind; in foreign exchange, the only constant is surprise.