Can the euro replace the dollar? Trump’s tariffs shake confidence in US currency as euro surges

American US Dollar Bills

President Trump's chaotic tariff implementation has done more than rattle international trade—it's rattled confidence in the US dollar itself. Once the linchpin of global finance, the dollar has lost value in 2025, prompting investors and central banks to look for safer bets. The euro has been one of the vehicles they've used. It has climbed more than 11 percent against the dollar since the start of the year to $1.18—its highest point in four years, the New York Times reported.

Euro's appreciation indicates more than dollar weakness

The recent euro strength is not just against the dollar. It has also gained strength against other major currencies like Japanese yen, British pound, and Canadian dollar. This wider appreciation reflects that the euro is now considered to be more than a temporary safe haven. European Central Bank chief Christine Lagarde labelled this as a "profound shift" in world order, suggesting the dollar's grip as the world reserve currency can no longer be taken for granted.

Privileges of US dollar under threat

The dollar's predominance has long given the US what economists call an "exorbitant privilege" —the ability to borrow cheaply and easily because the world wants dollar-denominated assets like Treasury bonds. That demand has fuelled the American economy for generations, propelling American consumers' buying power and enabling gigantic government deficits. But Trump's volatile economic policies, like erratically imposed tariffs and increasing political volatility, are eroding that foundation.

Euro's appreciation revives old dreams and fresh concerns about

The long-resigned eurozone, written off for too long as too heterogeneous to challenge the dollar, is now reaping the rewards of a stronger euro. But appreciation is a double-edged sword. Export-driven economies like Germany are already grumbling that a high euro, combined with US tariffs, is undermining their competitiveness. SAP, Europe's most respected tech firm, said that each one-cent appreciation of the euro-dollar rate shaves €30 million off its revenues. Adidas and Daimler joined similar complaints.

Too strong for comfort? Inflation jitters creep back

A stronger euro also threatens to drag down inflation—already trailing the European Central Bank's 2 percent target. The ECB predicts 1.6 percent inflation next year, with the danger of a return to the anaemic price rises that hit the eurozone for most of the last ten years. Future cuts in interest rates are now being discussed by ECB officials after cutting eight times in the last twelve months. And despite falling interest rates, the euro keeps on rising, confounding normal economic principles.

The future of the euro: global player or temporary refuge?

Others think the euro's rally is overdone and see it returning to $1.10 next year. Some other analysts see a chance for Europe to lead the effort to create a truly "global euro." But Lagarde cautioned that global stature will not be automatic. It would take structural reforms—merging governance, broadening capital markets, and deepening economic integration. Without them, the euro's new strength is likely to prove short-lived.

A currency at a crossroads

The rise of the euro in 2025 is a turning point in global finance. While the US dollar's credibility has been undermined by political turmoil, the euro has proved to be a temporary haven. But whether it will be a stable pillar of the global monetary system will depend not only on American mistakes, but on Europe's own willingness to come together and take charge. For the moment, the balance of global finance is shifting—but the outcome is by no means certain.