The reaction of the markets in the currency market before the tariff attack of Donald Trump to the world is being very clear: the US dollar is suffering the consequences of a policy that investors does not like, and is being depreciated at its intersection with the main currency of the planet. In front of the euro, the green ticket already loses more than 10% since the minimum of January. Beyond the short -term reactions, the great question that is raised now is how the great battle for the hegemony of the main currency of the planet will be developed, and if the euro will be able to capitalize on the weakness that the dollar is suffering, and its world appeal, in the midst of the tariff war.
The dollar has been the king in recent years, but the events are precipitating in recent months and there are contestants, such as China, with the support of the BRICS, who want to unseat the most used currency on the planet. The euro, on the other hand, awaits its turn, in a decade in which the dollar is losing peso as an international reserve currency, and the European currency has managed to stay stable.
There is no doubt that the dollar has been, and remains, the king of world currencies. More than half of the international currency reserves that accumulate the central banks of the planet are dollars, the currency that is most used for world trade, and in which they are called, for example, the majority of future and trade contracts of raw materials worldwide.
The attractiveness of the American treasure debt as an asset free of risk par excellence in the world also supports the US currency, as does the world’s first economy in world diplomacy. However, at a time when the role of the United States is being questioned as a world leader, among other things, due to the apparent intention of the new government to isolate itself on certain fronts (“the United States cannot continue to be the police in the world,” Trump said several times), there is a very real possibility that the dollar continues to lose weight in the world as the most important currency on the planet. The rejection that is being appreciated in the American bond is proof of this.
“There are fractures in the condition of refuge of American bonds, and this reflects a loss of investors in the” American exception, “says Diego Barnuevo, an Ebury analyst
Diego Barnuevo, Ebury Market Analyst, points out how “the erratic decisions taken by the Trump administration in commercial matters, have caused a shock in markets around the world and a disruption of investors in US financial markets.” In his opinion, “what is most interesting in this capital flight, has been the simultaneous sale of assets of variable income, sovereign bonds and the dollar itself. We have seen, therefore, fractures in the condition of safe refuge of the American sovereign bonds, whose value traditionally ascended in times of uncertainty. What reflects this phenomenon, is a possible loss of confidence on the part of investors in the American exception and Leadership in terms of economic resilience, free trade and institutional strength, “says Barnuevo.
The dollar loses peso and the euro endures in second place
The process of weakening the dollar as a world reserve currency is already being produced: In the last decade, the weight of the dollar as an international reserve currency has fallen 7.2 percentage points. If at the beginning of 2016 the Green ticket It was 65.4% of the international currencies kept by central banks around the world as a reserve, that percentage has fallen to 57.8%, according to the data published by the International Monetary Fund.
In the same period, the euro has remained stable in this regard: at the beginning of 2016 the euro accounted for 19.55% in world reserves of foreign currencies, a percentage that, at the end of 2024, remains at 19.83%.
The decrease in the dollar has produced, in large part, as a result of The incorporation of the Chinese yuan into the foreign exchange basket with special rights of the International Monetary Funda milestone, which occurred in 2016, which led to Yuan to be placed as a new attractive currency to be saved as a reserve by international central banks. In 2016, when Yuan entered this basket, the Chinese currency barely accounted for 1% of the global international currency reserves, a percentage that has been increasing over the years: in 2022 it became 2.78% of the total, and at the end of 2024 it has dropped to 2.18%, a medium -term setback but that, in the balance of the last decade, continues to leave a higher position.
The harsh reality for the dollar is that it is the only currency, of the main ones that are used as an international reserve, which is losing weight in the last decade. The euro and the Swiss Franco remain stable, but the rest, both the sterling pound (despite the Brexit), and other more exotic currencies, such as the Australian dollar or the Canadian, have increased their weight in this period. The section that includes the IMF as “other currencies”, has also grown in 10 years, going from 2.5% to 4.5% in this period.
Will the euro eat the dollar ground?
Now, the big question in Europe is whether the euro will be the currency that will end up benefiting more than the weight loss that the dollar is suffering in the last decade, a trend that could go to more in the coming years if the United States continues to carry out an unstable foreign policy. What happens in the commercial front in the coming months will be key to reviewing the weight of the Special Rights Basket of the IMF, next year, since the weight of a currency in world trade is one of the variables that the agency measures, but, on the other hand, the endurance of the European currency as an international reserve for the central banks, against a dollar that deteriorates, is a point in favor of the euro.
Barnuevo explains how the European currency can gain future weight if the Trump administration continues to carry out a commercial and foreign policy, at least, erratic: “Before a more volatile dollar, subject to sudden political turns of the White House, the central banks of the rest of the world could continue to reduce their reserves in that currency, and diversify with more stable alternatives and similar liquidity, such as the euro “stands out. “In this sense, the main competitive advantage of the euro against some of its peers is not so much the prospects for its economic growth, but an institutional quality of the EU and the size of its capital market,” explains the Ebury analyst.
Now, with the crossing of the euro/dollar in the environment of $ 1.14, and despite the strong rebound that the European currency has experienced in the last four months, the consensus of analysts that it collects Bloomberg He believes that the euro still has a bullish route: if the futures on the currency point out that the $ 1.19 will be reached in 2027, analysts are somewhat less optimistic, with forecasts of reaching, and remains stable for a few years, the $ 1.15 in the coming months.
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