The US dollar has continued a sharp slide against major currencies, extending a trend that produced its steepest annual drop in nearly a decade in 2025. The dollar fell 1.3% against a basket of currencies on Tuesday, is down 2.6% since the start of 2026, and slumped 9.5% over 2025.
That weakness has lifted the euro and other currencies: the euro reached about $1.20 for the first time since 2021, while the pound and the yen have also strengthened versus the dollar. Economists link the dollar’s decline to dwindling investor confidence amid concerns about unpredictable US policymaking under President Donald Trump. Some advisers in his economic circle are reportedly open to a weaker dollar as a tool to boost US exports and manufacturing — a long-standing approach. When asked about the currency’s recent slide, Trump said: “No, I think it’s great.”
In November 2024, Stephen Miran, a former chairman of Trump’s Council of Economic Advisers and now a member of the Federal Reserve Board of Governors, published a “User’s Guide to Restructuring the Global Trading System” that lists tariffs and deliberate dollar devaluation among mechanisms to correct the US trade deficit.
Impact on the eurozone
The eurozone has felt the effect. The euro surged about 13% against the dollar in 2025 — its strongest year since 2017. Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics, warns a stronger euro matters for growth, labour markets and household finances. “A stronger euro makes exports less competitive, harming the region’s manufacturers, while making imports cheaper, lowering prices for consumers,” he told DW.
Ricardo Amaro, lead eurozone economist at Oxford Economics, cautions that further euro gains would weaken European exporters to the US. His team’s modelling suggests eurozone GDP could be about 0.2 percentage points lower by year-end if the exchange rate remains near current levels instead of around $1.16 — a reference point after the EU-US trade deal in late July.
A mixed picture for exporters
The picture is not uniform. Zsolt Darvas, a macroeconomics specialist at Bruegel, notes European exports have previously held up under stronger euro conditions. The current $1.20 level remains below the 2021 peak and well under the $1.30–$1.50 range seen from roughly 2004 to 2014. Darvas suggests the modest dollar decline is unlikely to trigger severe economic problems and could even draw investor interest toward the EU. Still, exporters already hurt by Trump-era tariffs could face a fresh double impact from exchange-rate moves.
Broadly, companies in the STOXX Europe 600 index earn roughly 30% of their revenues from the US, according to Goldman Sachs, with pharmaceuticals and autos among the most exposed sectors. Amaro argues US reliance on certain European pharmaceuticals may cushion some damage, while Allen-Reynolds points out that eurozone export performance has been weak in recent years amid rising competition from China. “We doubt that the moves seen so far would have a very big impact on export demand, but it certainly won’t help,” he said.
Should the ECB step in?
The euro’s ascent has renewed debate on whether the European Central Bank should intervene. Austrian central bank governor Martin Kocher described the gains as “modest” but warned the ECB would need to act if the exchange rate started to push down inflation forecasts. Most analysts say large-scale intervention is not yet justified but caution that continued euro appreciation could force policymakers to respond if it threatens inflation targets.
Amaro expects ECB officials to try to shape market expectations by publicly expressing concern about currency moves — a tactic that could revive discussions around interest-rate cuts and blunt upward pressure on the euro. Allen-Reynolds sees no reason to intervene on January’s exchange-rate shifts yet but says further appreciation might prompt rate adjustments later in the year. Darvas argues the current inflationary impact is close to zero and notes firms have adapted to much bigger exchange-rate swings in the past.
Overall, the combination of US tariffs and a weaker dollar presents a twofold risk for eurozone exporters: lost price competitiveness in the US market and the lingering direct effects of trade restrictions. For now, analysts view the situation as manageable but warn that sustained moves in either direction could force tougher choices from both firms and policymakers.