Finance
Analysis-From near $1 to tariff war winner, euro confounds its naysayers
Published by Global Banking & Finance Review®
Posted on April 11, 2025
5 min readLast updated: January 24, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on April 11, 2025
5 min readLast updated: January 24, 2026
The euro has unexpectedly surged amid tariff wars, reaching a three-year high as investors shift focus from U.S. assets to Europe.
By Yadarisa Shabong, Stefano Rebaudo and Alun John
(Reuters) - The euro has emerged as a surprise winner of the recent tariff-induced market turmoil, confounding the earlier consensus by surging to a three-year high against the dollar as Europe proves a relatively safe bet amid the global chaos.
Driving the currency's move is global investors' growing nervousness about owning U.S. assets, causing them to sell and move money back home. In Europe, the flows are boosting the euro.
"Money flows have become vastly bigger than trading flows," said Kit Juckes, chief FX strategist at Societe Generale.
"If the U.S. government causes equities to fall and reduces the profitability of U.S. companies, we should ask ourselves whether the rest of the world still wants to put all of its money in American bonds or equities."
The euro has gained more than 5% on the dollar since April 1, the day before U.S President Donald Trump introduced new 10% baseline tariffs on all economies and slapped duties totalling 20% on the European Union.
Trump's decision to pause the higher levies for 90 days on Thursday fuelled the biggest single-day jump in the euro since 2015. By Friday it had hit a three-year high above $1.14, building on the rally that had started weeks earlier after Germany announced a massive spending plan.
While policymakers in the region are talking up their currency as a global player, becoming a currency of choice could hurt European exporters which have benefited from a cheaper euro during global economic slowdowns, analysts warn.
Its strength has been broad, hitting a 17-month high versus Britain's pound and trading around 11-year highs on China's yuan, which has taken it to a record on a trade-weighted basis.
Safe havens like the Japanese yen and Swiss franc have also strengthened. But unlike those currencies, the euro normally weakens against the dollar in times of stress.
What's more, at the start of the year the euro was trading around $1.03, and analysts then expected it to fall below $1if tariffs were imposed. These bets are now being dramatically reassessed.
REPATRIATION
There is plenty to sell. Foreign holdings of U.S. assets had surged to $62 trillion in 2024 from $13 trillion a decade earlier as international investors flocked to outperforming American stocks, bonds and real estate.
The euro area accounts for the biggest share of foreign ownership of U.S. assets when broken down by currency, according to data from Adam Pickett, Citi's head of global macro strategy.
"I think this story can run as long as the reallocation runs," he said, drawing comparison with late 2022, when European stocks outperformed the S&P 500 for around six months and the euro gained around 10%.
"Then there are lots of pie-in-the-sky type discussions around whether the isolationism and lack of trust in U.S. institutions means, longer-term, people are less confident in holding on to U.S. assets. That's a much more difficult story to map out."
There are indeed many moving parts in very volatile markets and not everyone agrees on how things will develop.
"A shift out of U.S. assets in a secular long-term sense is not something that can be engineered in a week," said Lefteris Farmakis, senior FX strategist at Barclays.
Instead traders were re-evaluating their earlier view that the euro would be among the harder-hit currencies from tariffs, he said, and this accounted for the strength of the rally.
SAFE EUROPE
The relative moves in Treasuries and German government bonds also suggest some nervousness about U.S. debt, and the gap between German and U.S. 10-year yields has widened nearly 50 basis points this week. [GVD/EUR]
European Central Bank policymaker Francois Villeroy de Galhau said on Thursday that Trump's policies have eroded confidence in the dollar.
"Thank God that Europe 25 years ago created the euro," he said.
And its appreciation could keep going. "The euro rallying $1.25 is a very clear possibility," said Vasileios Gkionakis, senior economist at Aviva Investors, pointing to both safe haven flows and German spending.
This has various ramifications for Europe.
George Sarevalos, head of FX strategy at Deutsche Bank, said demand for euro-denominated debt could make it easier for European governments to spend, and the higher euro makes it easier for the European Central Bank to keep rates lower even if tariffs cause inflation to rise.
But it would have negative consequences for exporters.
"Normally, when the global business cycle is weak the euro weakens, which creates a relief valve and alleviates the negative impact on the European economy," said Mathieu Savary, chief European strategist at BCA Research.
"Right now this isn't happening, and this could create an additional risk for European stocks."
(Reporting by Yadarisa Shabong in Bengaluru, Stefano Rebaudo in Milan and Alun John in London, additional reporting by Dhara Ranasinghe in London; Editing by Amanda Cooper and Hugh Lawson)
The article discusses the euro's unexpected rise amid global tariff wars and its impact on market dynamics.
The euro has surged to a three-year high against the dollar, defying earlier predictions.
Global investors' nervousness about U.S. assets and Europe's relative stability are key factors.
Explore more articles in the Finance category
