The US dollar has continued to slide sharply against other major currencies, extending a trend that produced its steepest annual drop in almost a decade in 2025. The dollar fell 1.3% against a basket of currencies on Tuesday, down 2.6% since the start of 2026 and having slumped 9.5% in 2025.
That decline has lifted the euro and other currencies: the single European currency has reached the $1.20 level for the first time since 2021, while the pound and yen have also hit recent highs against the dollar.
Economists and analysts link the dollar’s decline to waning investor confidence in the US currency amid concerns over unpredictable policymaking from President Donald Trump. Some in his economic circle are seen as favoring a weaker dollar to boost US exports and manufacturing, a long-standing strategy. When asked if he was concerned by the dollar’s fall this week, Trump said: “No, I think it’s great.”
Stephen Miran, a former chairman of Trump’s Council of Economic Advisers and now a member of the Board of Governors of the US Federal Reserve, published a “User’s Guide to Restructuring the Global Trading System” in November 2024 that lists tariffs and dollar devaluation as tools for correcting the trade deficit.
Should Europe care? The eurozone economy has been affected: the euro surged 13% against the dollar in 2025, its best year since 2017. Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics, says a stronger euro matters because it influences economic performance, labour market health and households’ 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, warns that a continued euro rise against the dollar would erode the competitiveness of European exporters to the US. His firm’s model implies eurozone GDP could be around 0.2 percentage points lower by year-end if the exchange rate stays at current levels rather than near $1.16, a reference point after the EU-US trade deal in late July.
A mixed picture for exporters
Yet the picture is mixed. Zsolt Darvas, macroeconomics specialist at the Bruegel think tank, notes that European exports have previously performed well despite higher euro valuations. The current $1.20 level remains below 2021 peaks and well under the $1.30–$1.50 range seen from about 2004 to 2014. Darvas says the slight dollar decline is unlikely to cause severe economic trouble in Europe and might even shift investor interest toward the EU. Still, he cautions that exporters already hit by Trump’s tariffs last year could take another hit from exchange-rate moves.
European companies in the STOXX Europe 600 index derive roughly 30% of revenues from the US, according to Goldman Sachs. Sectors particularly exposed include pharmaceuticals and automotive. Amaro suggests the US dependence on some European pharmaceuticals might mitigate damage, while Allen-Reynolds points to generally weak eurozone export performance 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.
Time for ECB market intervention?
The euro’s rise has sparked debate about whether the European Central Bank should intervene. Austrian central bank governor Martin Kocher called the gains “modest” but warned the ECB would need to act if the exchange rate began to lower inflation forecasts. Most analysts say significant intervention isn’t warranted now but warn that further euro appreciation could force policymakers’ hands if it threatens inflation targets.
Amaro expects ECB officials to try to influence market expectations by voicing concern about recent currency moves, which could bring rate-cut discussions back into play and counter euro appreciation momentum. Allen-Reynolds sees no need to act on January’s exchange-rate changes yet but says further moves might prompt interest-rate adjustments later in the year. Darvas argues the current inflationary impact is near zero and companies have adapted to much larger exchange-rate swings historically.
Edited by: Uwe Hessler