The euro rises strongly due to the weakness of the dollar against Trump’s policies

Frankfurt (Germany).- The euro rises strongly since the beginning of the week due to the weakness of the dollar due to the loss of confidence because the policies of the US president, Donald Trump, question the economic and geopolitical order. The euro surged to $1.2150, a high since June 2021, after Trump said he is not worried about the recent depreciation of the greenback, but then fell back to $1.197. Trump showed no concern about the dollar’s depreciation in statements to the American television network Fox News.

When asked if the dollar had fallen too much, Trump said: “no, I think it’s great”.

Does the US have an interest in a weaker dollar?

These comments have led to the thought that Trump might be interested in a weaker dollar, which would boost US exports, although it is not clear that this is the case.

The euro has appreciated by approximately 3% during four consecutive rounds of rate hikes.

“The US dollar, which started a downward trend last year, will likely continue to weaken, because the US wants a weaker dollar,” said Thomas Friedberger, deputy CEO of the French asset manager Tikehau Capital, this Wednesday. Trump’s trade policy has boosted dollar sales this week after he threatened South Korea with higher tariffs, 25% instead of 15%, for not complying with the agreement reached last year. The uncertainty about US policies harms the dollar and has also triggered sales of US Treasury bonds at times. The fear of a new shutdown of the US federal government starting Saturday adds more fuel to the fire. Senate Democrats have said they will block funding for the Trump administration in response to their rejection of his immigration policy, which has already left several people dead from shots fired by federal agents. The euro began its upward climb at the beginning of the week because rumors of intervention by the US and Japan to support the yen weakened the dollar. The prospects of the Federal Reserve (Fed) lowering its interest rates throughout this year, although not this Wednesday, contribute to the depreciation of the dollar.

Uncertainty

The beginning of 2026 has been marked by high political and economic uncertainty following the US intervention in Venezuela, tensions between the US and the European Union (EU) due to Greenland, and new threats of tariffs. The Commezbank analyst Antje Praefcke considered this Wednesday that this uncertainty leads investors “to flee to safe tangible assets in the financial markets”. Investors are getting rid of conventional assets such as currencies and bonds and buying tangible assets such as gold, silver and, to some extent, stocks, which are shares in companies. “Safe assets no longer seem to be currencies in the fiduciary system like the dollar, yen and franc, but precious metals and possibly company stocks,” according to Praefcke. “After the US president first questioned and stirred up the economic order and then the geopolitical order, the financial system is also being shaken,” adds the currency market analyst. Praefcke believes that “the American president cannot be interested in losing control of the financial system and forcing a complete reorganization.” “After all, ‘make America great again’ should include the financial system and the dollar,” argues Praefcke. The U.S. Treasury Secretary, Scott Bessent, has committed to a “strong dollar policy”.

U.S. Treasury bond yields remain stable

The yield on US Treasury bonds has remained very stable because the Fed is expected to lower interest rates, the US economy is strong, investors are not very worried about the loss of independence of the Fed, and foreign demand for these bonds has increased, according to UniCredit’s Head of Strategy, Luca Cazzulani.

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Although it anticipates “a gradual reduction in the global exposure of investors over time”, Cazzulani believes that it is unlikely that sales of US Treasury bonds will be used as a weapon and a coordinated divestment will take place. Cazzulani sees a gradual reduction in foreign exposure to US assets as a medium-term risk, but believes that coordinated sales seem much less likely because investors would lose a lot of money. A sustained fall in demand for these bonds would be problematic for the US given its large budget deficit and the strong issuance of debt.