The world’s most traded currency pair—the U.S. dollar vs. the euro—has been on a volatile ride since the pandemic, most recently due to Donald Trump’s fluctuating economic policy. With a volatile macro backdrop on both sides of the Atlantic, our panelists are rethinking their forecasts for the coming years.
From dominance to drift: The U.S. dollar strengthened markedly against the euro throughout 2022–2023, buoyed by aggressive Federal Reserve rate hikes and relative economic outperformance. After a period of weakening, appreciation resumed in late 2024 and early 2025, as investors bet that Donald Trump’s election would cause the Fed to keep interest rates higher for longer. However, since Trump’s inauguration the dollar is down close to 9%, as the administration’s scattergun approach to trade policy and attacks on pillars of U.S. economic success—such as universities and the Fed—alarmed markets. In mid-May, the euro was worth 1.12 USD, from close to parity earlier in the year.
Safe-haven-status under threat: An interesting development in recent months has been that the dollar has moved in the opposite direction to the gold price and Treasury yields. Treasury yields are down and the gold price is up since Trump’s January inauguration due to elevated safe-haven demand for both assets. However, the dollar—usually a safe-haven asset in its own right—has weakened amid reduced investor appetite. Unpredictable U.S. policymaking is highly likely to accelerate the transition away from the dollar as the world reserve currency in coming years, a trend that has been well underway for some time.
Euro to adopt a bigger global role? The euro’s share of global currency reserves has hovered around 20% for some time, far below that of the U.S. dollar, which still accounts for over half of all reserves. The loss of confidence in the dollar is certainly an opportunity for the euro to gain market share, but Europe’s capital market is too fragmented and its pool of assets neither deep nor liquid enough to support a much-expanded role for the euro as a true international reserve currency. As such, any shift away from dollar assets is likely to benefit a broad basket of other currencies, not exclusively the euro, resulting in a more fragmented distribution of reserves.
Our panel’s call: The Consensus among our panelists is that the EUR will end this year worth 1.11 USD, roughly in line with the past-decade average and roughly in line with its current level; Trump is likely to reach trade deals with foreign countries in coming months that calm investor nerves. However, the forecast spread is wide at 1.00 to 1.23, indicative of still-elevated policy uncertainty. The euro is then seen trading close to its 2025 level for the remainder of the decade, with gains capped by persistently lower interest rates than the U.S.
Insight from our analysts:
“Long-dated US government paper will loose some of its appeal as a safe have asset compared to peers (e.g. selected European government paper) and due to decreased policy credibility. This will lead to certain dilution, but all other safe haven fixed income assets globally cannot compensate for the US market. Moreover, short-dated US government bonds will remain a safe have asset. Deep and liquid US stock markets will also secure certain flow of capital in the US and in parts of trade finance USD will remain of importance.”
Gunter Deuber, Managing Director at Raiffeisen Bank
“The dollar is losing further ground as the global reserve currency. There have been signs of further reduction of global exposures to U.S. treasuries as the unpredictability of U.S. policy making forces a re-examination across the global financial community. Furthermore, the potential for further escalation of the trade war might increasingly see sales of U.S. treasuries as a method of retaliation. The Trump administration is deliberately seeking a weaker dollar to achieve his aims of reviving industry.”
Dennis Shen, Scope Ratings
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