FRANKFURT, June 26 (Xinhua) -- The euro rose against the U.S. dollar on Tuesday, hitting its highest level since October 2021 at the reference rate of 1.1607, before it inched down to 1.1598 on Wednesday, according to European Central Bank data.

After U.S. President Donald Trump announced Tuesday that Israel and Iran had agreed to a comprehensive and complete ceasefire, the temporary easing of the conflict prompted capital to flow out of traditional safe-haven assets such as the U.S. dollar, leading to a strengthening of the euro.

At the same time, a sharp drop in oil prices also supported the currency. As a major importer of oil and liquefied natural gas, Europe benefits directly from lower energy costs, which bolsters its economic fundamentals.

Recently, market confidence in the eurozone economy has also shown signs of recovery, with clear signs of an economic rebound in Germany.

Germany's Ifo Business Climate Index rose to 88.4 points in June, its highest level in nearly a year. "The German economy is slowly regaining confidence," Ifo President Clemens Fuest said.

The euro has soared more than 12 percent against the U.S. dollar since the beginning of this year, amid growing questions over the foundation of U.S. dominance and renewed calls from the European Central Bank for a greater international role for the euro.

The euro's rise has been largely driven by the weakening dollar, with the U.S. Dollar Index -- which measures the greenback against a basket of major currencies -- falling by about 11 percent since the beginning of the year.

The U.S. administration's announcement of new import tariffs earlier this year also sent the index plunging to an unprecedented low, signaling a growing loss of investor confidence in a currency once seen as a reliable safe haven in times of crisis.

The dollar's share of global foreign exchange reserves has declined in recent years to its lowest level since 1994, European Central Bank President Christine Lagarde said in a recent speech.

As the foundations of the international monetary system, dominated by the U.S. dollar, begin to shake, Lagarde called on the EU to prepare for a "global euro moment," noting that the dollar's erosion has opened a window of opportunity.

According to a survey published Tuesday by the independent think tank Official Monetary and Financial Institutions Forum (OMFIF), 16 percent of the 75 central banks surveyed between March and May plan to increase their euro holdings over the next two years, up from 7 percent last year.

According to the OMFIF, 96 percent of the central banks are concerned about U.S. tariffs and trade protection, while 70 percent "are increasingly worried about the U.S. political environment."

The EU has unveiled plans to beef up its defense spending. The German government announced Tuesday that it would increase its military spending to 3.5 percent of its economic output by 2026, while also planning significant investments in the coming years aimed at reviving its struggling economy. Enditem