End Of The Dollar's Reign? The Euro Has A Historic Card To Play

Europe has seen storms, crises, doubts come and go. But rarely has such a large window of opportunity opened. Since Donald Trump’s United States has been playing geopolitical roulette with tariffs and chaining economic provocations, a crack is forming in the armor of the king dollar. And in this breach, the euro, often mocked for its hesitations, could well invite itself to the table of the major global currencies. Even better, it could soon impose itself there.

The Dollar Weakens, the Euro Strengthens

Since Donald Trump’s inauguration, the dollar no longer shines as much. In April, the DXY index – which measures the strength of the greenback against major currencies – fell by 10%. A real slide fueled by the political whims of the White House and public criticisms against the Federal Reserve.

Europe, thanks to its stability and investments, will benefit from the fall of the dollar.

Thierry Laborde from BNP Paribas.

This falling out with the dollar is pushing investors to rethink their cards. And guess who is about to play their ace? The euro. The single currency has never really been able to take advantage of its massive economic potential. But today, the cards are being reshuffled. If Europe seizes the moment, it can impose its currency as a global monetary pillar.

Certainly, nothing is decided yet. The euro still lacks a “safe asset“, a safe haven equivalent to US Treasury bonds. This monetary grail, used as universal collateral, is sorely missing in the Old Continent. Yet the foundations are there: a strong European Central Bank, a banking sector of $34 trillion, 40% larger than that of the United States. That is no small matter.

The Dream of a European Safe Asset: Mirage or Turning Point?

The big question is this: can the euro become a reserve currency without a worthy safe asset? So far, attempts have failed: the “stability bonds” of 2011, the “ESBies” of 2018, or even the post-Covid NextGenerationEU program – all suffered from a lack of political consensus. The idea of mutualized debt in the eurozone remains taboo for several capitals.

But times are changing. Under the pressure of an unpredictable America, some dogmas are wavering. Germany itself, long champion of budgetary orthodoxy, has crossed a Rubicon by launching a massive defense and infrastructure plan funded by debt. And if this were only the beginning?

As the Institute of Liberties reminded us:

There have been far more dollars for sale than euros to buy. […] And that’s why your daughter is mute, Molière would have said.

Simply put, flows are reversing. The euro is rising, the dollar is wavering, bitcoin persists, and the public, once skeptical, is beginning to believe in the potential of a strong European currency backed by a more integrated economic policy.

Speculation is rampant. For the euro to impose itself, there will need to be a shock. What if this shock came not from finance, but from politics? As in 2020 with Covid, a crisis can sometimes accelerate changes more than a European summit. Perhaps Trump, in weakening the dollar, will inadvertently do a proud service to the currency he loves to hate.

Capital, Confidence, and Competitiveness: Signals Turn Green

Confidence is contagious, especially when it affects wallets. While Wall Street logs its worst sessions in two years, the euro benefits. Not only is the currency climbing, but capital follows. Large funds are repatriating their assets from America to reinvest them on European soil.

It’s a reversed domino effect: the imbalance on one side breathes life into the other.

The consequence? A euro flirting with peaks, gold shining like never before, and oil climbing, fueled by hopes (illusory?) of a Sino-American trade truce. Even European bonds are regaining color. The yield on German Bunds is slowly rising, evidence of renewed interest in the bloc’s sovereign debts.

And in all this upheaval, one question keeps coming up: can the euro take over from the dollar? For DerivativesProFR, the time may have come:

The global markets […] seem to have found a new balance.

An equation that pleases investors seeking stability. And when the word “stability” rhymes with “Europe”, it means something has changed.

On the stock market too, the signs don’t lie. At every Wall Street crisis, Europe has sometimes managed to come out ahead. This was the case in 2001, in 2008 to a lesser extent, and today history might repeat itself. The recent Nasdaq drop combined with the euro’s revaluation of over 11% against the dollar shows that financial tectonic plates are shifting. So yes, the euro is not king yet. But on this world economic stage, it could well land a leading role. And this time, without a double.