Euro Grows as Dollar Concerns Mount

On the 2nd of April, US President Donald Trump announced that he would impose a sweeping tariff policy that would shake up global trade and empower US products. The reciprocal tariffs were to target around sixty countries and blocs that have high trade discrepancies with the US. “While the aftermath of the so-called Liberation Day has caused chaos, it hasn’t exactly had the desired effect. The euro and other major currencies began to show signs of strengthening against the dollar.

Namely, while his goal was to strengthen the US, other entities seem to have gained more. A lack of trust, explosive and borderline impulsive decision-making, and the unreliability of the US have taken a toll. These factors have caused political forces to unite against the greenback. Central bank officials and strategists are predicting, however, that the euro will flourish.

Expert opinions on EUR/USD

Yannis Stournaras, governor of Greece’s central bank, said during a panel on Sunday that several factors explain recent dollar movements. These include Trump’s attacks on the Fed and various public institutions. There is also a general lack of U.S. financial sustainability following the president’s Big ‘Beautiful’ Bill.

For reference, both EUR/USD and GBP/USD have shown strong performance during the previous month. This indicates that other major world currencies are currently showing stronger performance than the greenback.

Stournaras is referring to Trump criticising Fed Chair Jerome Powell due to his decision to keep rates steady. In the US president’s fashion, he came out with childish insults, along with calling Powell’s decision-making destructive. Trump believes that rates should be cut by 2.5 points to ease government debt payoff. It was hinted that Powell, whose term ends in 2026, will be replaced, with Trump Joking that he may give the position to himself.

Needless to say, this introduces a lot of tension into forex markets. Forex is a very reactive field, and when not only a major rate cut is implied, but the replacement of a major figurehead is hinted at, traders and investors feel some unease.

With the US-EU trade deal status in limbo for an extended period, uncertainty has grown. The effect of that unease is multiplied. With what was suggested in April, EU goods imported into the US could face tariffs of up to 50%. This is quite significant, as the US-EU trading relationship makes up about 30% of the top global trade. Disruptions would create a void that’s difficult to fill. As such, either consumers would feel the result or alternate partnerships would form, and most likely, a mixture of both.

Additional worries

So far in the year, the EUR/USD has risen around 14%. The fact that this is mostly driven by the decreased trust in the USis cemented by the fact that interest rates were actually cut by the ECB while the Fed has, as mentioned, kept them flat.

US creditors have additional cause for concern with Trump’s recently passed tax bill. While many consider the bill, including, among other things, cuts to social programmes, a political victory, it is projected to increase the federal deficit.

Stournanaras emphasised that he doesn’t expect a complete shift from the dollar to the euro in international reserves, especially not overnight. However, he is confident that the EU currency will earn more of a spot as time goes on. Additionally, he stated that, if the euro is to become more internationally prominent, efforts to complete the longstanding plan to create a Banking Union and Capital Markets Union are needed. This, he believes, will reduce the internal barriers preventing the euro from becoming more prominent.

Gabriel Makhlouf, the chief of Ireland’s central bank agrees with the sentiment. “I think what we’re seeing right now with the dollar is a realignment, a readjustment on the part of investors,” he stated.

Makhlouf believes it’s not just the tariff policy that’s the main culprit of the US’s positional decline. He implied that many people see the rule of law weakening in the United States, and are responding appropriately. This more uncertain and shifting environment presents a risk to investments and assets, which he trusts is resulting in a pullback.

The future of the euro

In the decade between 2014 and 2024, the euro has kept the second spot in global currency reserves. It has remained steady, hovering around a fifth of all global currency reserves, or around 20%. However, the US dollar has given up space, declining from 68.8% in to 57.8% in 2024 according to the ECB. The data for 2025 isn’t yet available, but EU’s central bank figures believe that the dollar may give up more space, and that the euro has the inclination to broaden its position.

Euro area finance minister alliance Eurogroup president Paschal Donohoe also predicted the increase of euro-denominated borrowing for the following years. He cited the NextGenerationEU stimulus project, started to ease the effects of the COVID-19 pandemic, as one of the primary reasons.

He stated that stability is the main factor underpinning euro growth, saying that strong foundations are integral. Almost doubtlessly, this is a reflection on how uncertainty is a significant factor in the USD’s fall from grace.

What’s next for forex traders?

In the following months, many things are bound to affect the EUR/USD pair. Tariffs, monetary policy and general explosive decisions can cause major shifts quickly. As such, traders who enjoy volatility may have their perfect trading environment in the next period. However, strategists are predicting that, even though prices will show significant movement, the euro is bound to have a stronger performance.

The dollar has shown a lot of fragility. Even its status as a safe haven asset is in question as the recent geopolitical tensions have only resulted in a temporary boost in its value. Oil, one of the US’s premier assets, has also failed to drive up the dollar, as even when energy pricesd rose significantly, the greenback’s value jump was transient. Trump’s second presidency has resulted in the US’s global position declining. The EU is content to take up some of the space left there. As such, even in the long term, provided that events keep unfolding similarly, the euro may have a bullish outlook.

Disclaimer: This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.

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