A Deteriorating US Dollar Poses an Extra Obstacle for Export-Focused Websites
In a significant development, the US dollar has weakened against the euro in 2025, marking a return to levels before the Israel-Iran conflict. This trend has been observed since the start of the year, with the euro currently up almost 15% against the US currency compared to mid-January.
According to Roman Ziruck, senior market analyst at Ebury, this shift in currency value is influenced by a variety of factors, both economic and geopolitical. The weakening US dollar is attributed to factors related to the presidency of Donald Trump, including concerns about the US economic prospects, trade issues, and the US moving towards trade protectionism.
One of the key reasons behind the dollar's depreciation is the divergence in central bank policies. If the European Central Bank (ECB) pursues a more hawkish stance compared to the US Federal Reserve, this increases demand for euros relative to dollars, weakening the USD against the euro.
The stronger Eurozone economic outlook is another significant factor. Favourable trade balances, GDP growth, and employment figures in the euro area boost investor confidence in the euro, contributing to its appreciation.
Inflation and real interest rate differentials also play a crucial role. Higher inflation or lower real interest rates in the US compared to the Eurozone could reduce the attractiveness of dollar assets, leading to dollar depreciation.
Shifts in global risk sentiment and capital flows also favour the euro. If investors perceive geopolitical risks or uncertainties skewed more negatively towards the US or dollar, the euro may strengthen as a comparatively safer or more attractive currency.
Increased European investment or capital inflows into the Eurozone asset markets can drive up demand for the euro, further strengthening its value against the dollar.
The weakening US dollar may offer some relief to consumers in areas where goods are priced in dollars. For instance, the weaker US dollar may improve economic prospects in the near term for certain consumers, particularly travelers to the US.
However, the weakening of the US dollar is an extra level of pressure on exporting firms in the EU. If oil prices are priced in dollars, the reversal in oil futures could contribute to a calmer price environment in the euro zone. Conversely, the EU, being an exporting economy, is expected to face issues due to a weaker US dollar.
Markets are uneasy about attempts by the US President to influence central bank policy and the potential change in Federal Reserve leadership. The passing of the One Big, Beautiful Bill, which is expected to increase US debt in the coming years, has added to concerns about uncharacteristic US fiscal deficits despite strong economic activity.
In summary, the key factors behind the 2025 US dollar weakening against the euro include divergent central bank policies favouring the euro, a stronger Eurozone economic outlook, inflation and real interest rate differentials, shifts in global risk sentiment and capital flows favouring the euro, and concerns about the US fiscal situation. These typical drivers align with the observed 12% depreciation of the dollar versus the euro in 2025.
- The strengthening Eurozone economy, with factors such as favorable trade balances, GDP growth, and employment figures, has boosted investor confidence in the euro, thereby contributing to its appreciation against the US dollar in the finance sector of business.
- The divergent central bank policies between the US Federal Reserve and the European Central Bank have significantly influenced the currency market, with the ECB's potential hawkish stance increasing demand for euros and losing demand for dollars, culminating in the depreciation of the US dollar against the euro in the industry of finance.
