The Euro Is Surging — Trump’s Policies May Drive It Even Higher

The Euro is on a strong upward trend in 2025, rising nearly 14% against the U.S. dollar so far this year. Analysts and central bankers believe this rally may not be over — and that political decisions in Washington could further accelerate the euro’s momentum.

A Shift in Global Currency Dynamics

Speaking at the Aix-en-Provence economic forum in France, European Central Bank (ECB) officials stated that the euro, while not yet ready to rival the dollar as the world’s primary reserve currency, is increasingly viewed as a stable and credible alternative. That perception, they say, will only grow if European policymakers continue to implement supportive reforms.

Yannis Stournaras, Governor of the Bank of Greece, explained during a CNBC-moderated panel:

“If you combine U.S. tariffs, attacks on the Fed and institutions, and the fiscal trajectory after the ‘beautiful’ tax bill — it explains the recent evolution of the dollar exchange rate.”

He added:

“Those who impose tariffs will be hurt first,” hinting at the long-term economic impact of aggressive trade policies.

Trump’s Economic Moves Shake Confidence in the Dollar

Uncertainty surrounding U.S. tariff negotiations, rising deficits, and a tax-and-spend bill signed by President Donald Trump are creating jitters among global investors. While the legislation was hailed as a political win, it’s expected to increase America’s already large federal deficit — adding pressure on the dollar.

At the same time, early trade deals with countries like the U.K. and Vietnam suggest that the U.S. is maintaining higher tariffs on imports than earlier in the year, even if they’re below previously threatened levels.

Despite the ECB cutting interest rates and the Federal Reserve keeping them steady, the euro has surged — supported by confidence in EU fiscal expansion and a shifting global sentiment.

Is the Euro Ready for a Bigger Global Role?

The euro’s share of global foreign exchange reserves has remained steady at around 20% for over a decade. In contrast, the dollar’s share dropped from 68.8% in 2014 to 57.8% at the end of 2024, according to an ECB report.

ECB leaders, including Stournaras and Ireland’s central bank governor Gabriel Makhlouf, see an opportunity for the euro to expand its global influence. But to get there, they say the EU must complete key structural reforms — including a Banking Union and Capital Markets Union.

Makhlouf noted:

“It’s not just about tariffs. Investors are watching the rule of law weaken in the U.S., and that raises risks for their assets. They’re adjusting accordingly.”

Paschal Donohoe, President of the Eurogroup, added that euro-denominated borrowing is set to rise sharply in coming years, especially under programs like NextGenerationEU, aimed at post-COVID recovery.

“The key for us is to have strong foundations in place for the euro,” Donohoe said.

Outlook: Volatility Ahead, but Euro Has Support

While euro-dollar exchange rates will likely fluctuate in response to new developments in trade, interest rates, and politics, strategists believe the euro remains well-supported.

Francesco Pesole, FX strategist at ING, pointed out that recent geopolitical risks and rising oil prices failed to give the dollar a lasting boost — a sign of its weakening status.

“The FX market didn’t fully price in long-term risks. But part of that is because investors are wary of holding dollars due to deeper fiscal and political concerns,” he said in a June note.

Deutsche Bank strategists George Saravelos and Christian Wietoska emphasized that international investors are no longer buying enough U.S. assets to fund America’s large current account deficit.

“They don’t have to sell U.S. assets — just stop buying. That alone is enough to weaken the dollar.”

Conclusion: A New Chapter for the Euro?

The euro is gaining global attention as a stable alternative to the dollar. While it may not replace the greenback anytime soon, shifting trade policies, rising U.S. deficits, and stronger EU coordination are laying the groundwork for a more powerful role for the euro in international finance.