On the 24th, the euro once again broke through the 1.16 mark against the U.S. dollar, reaching a high of 1.1641—its highest level since October 2021. Recently, amid ongoing regional conflicts and diverging central bank policies, the euro has shown resilience and is increasingly viewed by markets as an alternative asset to the U.S. dollar.
On the evening of the 23rd Eastern Time, former U.S. President Donald Trump announced via social media that Israel and Iran had agreed to a “full and complete ceasefire.” The temporary easing of tensions led capital to flow out of traditional safe-haven assets like the U.S. dollar, boosting the euro. Additionally, a significant drop in oil prices provided further support for the euro. As a major importer of oil and liquefied natural gas, Europe stands to benefit economically from reduced energy costs.
Market confidence in the eurozone economy has also seen a rebound recently, with clear signs of recovery in Germany. In June, the ifo Business Climate Index from the Munich-based ifo Institute rose to 88.4, marking a one-year high. Clemens Fuest, President of the ifo Institute, stated, “Germany’s economy is slowly regaining confidence.”
On monetary policy, the European Central Bank (ECB) cut its three key interest rates by 25 basis points earlier this month. ECB President Christine Lagarde hinted that the rate-cutting cycle may be nearing its end. In contrast, U.S. Federal Reserve Chair Jerome Powell said during a congressional hearing on the 24th that the Fed would remain cautious in adjusting monetary policy, as it needs a clearer understanding of how tariffs might impact inflation and the broader economy.
James Knightley, Chief International Economist at ING, interpreted Powell’s remarks as a signal that the Fed is “in no rush to cut rates.” ING now expects the Fed’s next rate cut to be postponed to the fourth quarter, possibly even December.
Amid ongoing regional conflicts and uncertainties in U.S. government policies, market confidence in the dollar is gradually eroding. Investors are increasingly turning to gold and the euro for asset allocation.
A report released on the 24th by the Official Monetary and Financial Institutions Forum (OMFIF) revealed that many central banks are re-evaluating their asset allocation strategies. While the U.S. dollar was the most favored currency among surveyed central banks last year, it has now dropped to seventh place. A notable 70% of respondents indicated that the U.S. political climate hinders their willingness to invest in the dollar.
Market observers widely believe that U.S. tariff policies have had a sustained negative impact on the dollar. Media reports noted that the 90-day grace period for the U.S.’s reciprocal tariffs on most countries is nearing its end, sparking growing anxiety. As the U.S. increasingly uses tariffs as a trade weapon, more countries are actively seeking alternatives to the dollar, which could further weaken its role in the global financial system.
Harvard University professor and former IMF Chief Economist Kenneth Rogoff stated, “In the coming years, the euro’s share in global foreign exchange reserves will almost certainly rise.” Bernard Altschuler, HSBC’s Global Head of Central Bank Business, believes the euro could reach a 25% share of global foreign exchange reserves within the next two to three years.
Source: news.cn