Euro Surges Against the Dollar Amid Tariff Turbulence

The euro has emerged as a surprising victor in recent market fluctuations, reaching a three-year high against the US dollar as global investors grow increasingly nervous about holding American assets.

This remarkable turnaround comes in the wake of President Donald Trump’s new tariff policies, which have triggered significant market turbulence and caused a substantial shift in global investment flows. The euro’s strength has confounded earlier market consensus, which had predicted the currency would weaken below $1 if tariffs were imposed.

Instead, the single currency has gained more than 5% against the dollar since April 1, the day before Trump introduced new 10% baseline tariffs on all economies and additional 20% duties specifically targeting the European Union. The currency’s rally has accelerated following Trump’s decision to pause the higher levies for 90 days, fueling the biggest single-day jump in the euro since 2015.

Euro Emerges as a Winner Amid Traffic Woes

As of 11:13 AM EST on April 11, 2025, the EUR/USD exchange rate stood at 1.1380, representing a daily gain of 1.08%. This follows an even more impressive 2.80% surge on April 10, when the rate closed at 1.1258. The currency pair reached as high as 1.1473 during April 11 trading, marking a substantial rise from its recent low of 1.0732 recorded on March 27, 2025.

Over this period, the euro has experienced a remarkable 5.06% jump, with the most dramatic movement occurring between April 9-10 when the euro decisively broke above the psychologically important 1.10 level.

This upward momentum builds on gains that started weeks earlier following Germany’s announcement of a massive spending plan, creating a perfect storm of factors supporting the single currency.

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Euro’s Turnaround Reflects Significant Shift in Global Capital Flow

The primary driver behind the euro’s unexpected strength is a significant shift in global capital flows. European investors are selling their US assets and bringing money home, with the euro area accounting for the largest share of foreign ownership of US assets by currency.

This repatriation pattern is particularly potent given that foreign holdings of US assets had ballooned to $62 trillion in 2024 from just $13 trillion a decade earlier. Unlike traditional safe havens such as the Japanese yen and Swiss franc, the euro typically weakens against the dollar during periods of market stress, making its current performance all the more remarkable.

The gap between German and US 10-year bond yields has widened substantially, suggesting growing investor nervousness about US debt. According to ECB policymaker Francois Villeroy de Galhau, Trump’s policies have eroded confidence in the dollar, while some analysts now project the euro could potentially rally to $1.25 if current trends continue.

Euro’s Appreciation Carries Mixed Implications for the European Economy

The euro’s appreciation carries mixed implications for the European economy. On the positive side, increased demand for euro-denominated debt could make it easier for European governments to fund spending initiatives. The stronger euro also provides the European Central Bank with more flexibility to maintain lower interest rates even if tariffs cause inflation to rise.

However, analysts warn that becoming a currency of choice could ultimately hurt European exporters who have traditionally benefited from a weaker euro during global economic slowdowns. This concern is particularly relevant as the euro’s strength has been broad-based, hitting a 17-month high versus Britain’s pound and trading around 11-year highs against China’s yuan, pushing it to a record level on a trade-weighted basis.

As markets continue to adjust to the new tariff landscape, European policymakers will need to carefully balance these competing economic forces.

Disclaimer: The author does not hold or have a position in any securities discussed in the article. All stock prices were quoted at the time of writing.