Should Europe fear about euro energy and greenback weak spot? | EUROtoday

The US greenback continues to fall sharply in worth towards different main currencies, persevering with the development that noticed it have its steepest annual drop in nearly a decade in 2025.

The greenback fell by 1.3% towards a basket of currencies on Tuesday (January 27), which means it has already fallen by 2.6% because the begin of 2026. It slumped by 9.5% in 2025.

The fall within the greenback has implications for the euro. and different currencies. The single European foreign money has now hit the $1.2 stage for the primary time since 2021, whereas the British pound and Japanese yen have additionally reached latest highs towards the US foreign money.

Several economists and analysts have attributed the greenback’s persevering with decline to an absence of investor religion within the US foreign money, amid persevering with concern over unpredictable policymaking from US President Donald Trump.

There can be the view that Trump and plenty of in his financial crew need the greenback to lose worth within the hope that it’s going to enhance US exports and manufacturing as a part of a long-held technique.

Trump has carried out little to dispel this. When requested this week if he was involved by the greenback’s fall in worth, he stated: “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 Governers of the  US Federal Reserve, revealed a “User’s Guide to Restructuring the Global Trading System” in November 2024 with doable instruments for correcting the commerce deficit, mentioning particularly tariffs and devaluation of the greenback as the primary devices.

Should Europe care?

Whatever concerning the implications of a falling greenback for the US financial system, it has penalties for the eurozone financial system and the euro which surged by 13% towards the greenback in 2025 already — its finest 12 months since 2017.

Jack Allen-Reynolds, deputy chief eurozone economist with Capital Economics says the rise of the euro issues as a result of it performs an “important role in the performance of the economy, the health of the labor market and households’ financial position.”

“A stronger euro makes exports less competitive, harming the region’s manufacturers, while making imports cheaper, lowering prices for consumers,” he advised DW.

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Ricardo Amaro, lead eurozone economist for Oxford Economics, notes that if the euro continues to rise in worth towards the greenback, it will make European firms which export quite a bit to the US much less and fewer aggressive.

Although this might be offset by cheaper costs for US merchandise on European cabinets, he believes the present trade charge, if maintained, would have a unfavorable impression on European progress.

“Our global economic model suggests Eurozone GDP would be around 0.2% lower by year-end should the Eur/USD exchange rate remain at current levels, rather than around the $1.16 level that acted as a reference point post EU-US trade deal in late July,” Amaro advised DW.

A blended image for exporters

However, Zsolt Darvas factors to the truth that during times when the euro was valued considerably increased than it’s now, European exports nonetheless carried out properly.

The newest worth of $1.20 remains to be beneath ranges noticed throughout 2021, and considerably decrease than the $1.30 to $1.50 vary steadily seen from round 2004 to 2014, the macroeconomics specialist with the Bruegel suppose tank in Brussels, Belgium, advised DW.

“The recent slight decline in the dollar is unlikely to cause significant economic troubles in Europe,” stated Darvas, including that widespread media protection of the falling US greenback might even “encourage investors to shift their focus from US investments to the EU.”

But given how exporters have already been jolted by Trump’s commerce tariffs final 12 months, there are considerations that the trade charge may “deal another blow,” he cautions.

Companies within the STOXX Europe 600 inventory market index of main European firms derive round 30% of their revenues from the US, in accordance with Goldman Sachs.

While the stronger euro is already tied to extra optimistic progress estimates, sure European sectors may very well be susceptible to a cheaper greenback.

Ricardo Amaro says the pharmaceutical and automotive sectors are particularly in danger, though he thinks the US reliance on European pharmaceutical merchandise might offset any potential injury.

Jack Allen-Reynolds, in the meantime, factors to usually weak eurozone exports in recent times, significantly attributable to intensifying competitors throughout a spread of sectors 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 stated.

Time for ECB market intervention?

The surge within the euro towards the greenback has prompted hypothesis as as to whether the European Central Bank (ECB) ought to intervene in some kind.

Austrian central financial institution governor Martin Kocher thinks the euro’s latest positive factors have been “modest” however stated the ECB must intervene if the trade charge began to decrease inflation forecasts.

Most analysts agree that now is just not the time for any vital intervention in financial coverage, however warn additional hikes within the worth of the euro might power ECB policymakers’ palms if inflation objectives have been to be impacted.

Ricardo Amaro already sees ECB policymakers making an attempt to affect market expectations by stating they’re “monitoring the situation and voicing some concern about recent moves.”

“This brings rate cut discussions back into the table and acts against the euro appreciation momentum,” stated Amaro.

For Jack Allen-Reynolds there’s additionally no have to act primarily based on the trade charge modifications to date seen in January. However, additional modifications may see the ECB chopping rates of interest later this 12 months, he believes.

And Zsolt Darvas argues the present inflationary impression is near zero and that no sector is very susceptible. “Exchange rates have fluctuated widely over the past decades, and companies have adapted to manage much larger swings in exchange rates than what we are currently observing,” he stated.

Edited by: Uwe Hessler