The recent shift in Europe towards increased fiscal spending has led asset managers to increase their bullish positions on the euro to a five-month high. Hedge funds, on the other hand, have reduced their bets on the currency weakening.

After Germany announced plans to relax fiscal constraints and invest billions of euros in transforming European defense, fund managers increased positions favoring a stronger euro to 262,759 contracts by mid-March. Hedge funds decreased their short euro positions, as shown in data from the Commodity Futures Trading Commission.

The shift in positions reflects a global reassessment of the euro's direction following Germany's decision to ease fiscal rules, prompting other European countries to follow suit. Analysts at Societe Generale SA raised their euro forecast, aligning with the optimism displayed by Goldman Sachs Group Inc. and Deutsche Bank AG.

SocGen's FX strategy head Kit Juckes suggested that changes to Germany's debt-brake rule could prevent the euro from returning to parity with the dollar for at least a decade. Societe Generale now anticipates the euro rising by nearly 5% to $1.13 in the fourth quarter.

With the euro appreciating more than 7% against the dollar since its February low, concerns over the dollar's strength due to volatility in US markets have grown. In comparison, expectations for Europe's increased spending to support economic growth have strengthened.

Goldman Sachs strategists highlighted that increased fiscal spending in Europe could counter policy uncertainties and positively impact the euro. They revised their three-month euro forecast to $1.07 from $1.02.

The outlook for the euro hinges on the dollar's performance as well as Europe's fiscal measures. The euro's trade-weighted valuation is considered fair, suggesting that its further appreciation may be influenced by the dollar's movements.

German conservative leader Friedrich Merz recently struck a deal with the Green Party on a debt-funded spending plan for defense and infrastructure, paving the way for a crucial vote in parliament.