^{Source: Euronews}

The euro and British pound continued their upward momentum on Monday, extending last week’s strong performance as the U.S. dollar slid to a three-year low. A combination of soft economic signals, global trade tensions, and shifting monetary expectations have weakened the greenback’s dominance — giving a significant boost to major European currencies.

Dollar Slips to Multi-Year Low

As of 8:50 a.m. UK time, the U.S. dollar index — which tracks the dollar against a basket of six major currencies — had dropped by 0.63%, falling to its lowest level since April 2022. This decline reflects a broader cooling of investor confidence in the dollar amid ongoing policy uncertainty and increased scrutiny over U.S. trade policies.

The euro climbed by 0.23% to $1.138, and the British pound surged by 0.6% to $1.136, marking the continuation of a rally that began last week after the U.S. unveiled further tariff exemptions and weaker-than-expected inflation data raised doubts about the Federal Reserve's hawkish stance.

Strategic Currency Shifts Amid Tariff Pressure

According to Benjamin Picton, senior macro strategist at Rabobank, the dollar's slide challenges previous assumptions about its strength in times of tariff escalation. In a market note published Monday, Picton referenced earlier remarks by U.S. Treasury Secretary Scott Bessent, who had argued that the burden of tariffs would be absorbed by exporting nations thanks to a robust dollar. “That assumption,” Picton wrote, “has clearly gone out the window for now.”

This softening of the dollar not only impacts U.S. purchasing power but also undercuts a key Trump administration strategy: using dollar strength as a buffer for tariff-related inflation. Picton also pointed out that the longstanding overvaluation of the U.S. dollar, tied to its global reserve currency status, has been a major frustration for President Trump and his economic advisers, who have previously accused foreign governments of currency manipulation.

European Currencies See Renewed Strength

The euro’s resurgence is also tied to increasing optimism around Eurozone economic recovery and improving industrial output. In recent weeks, data from Germany and France showed modest manufacturing rebounds, which helped lift investor sentiment in the euro. Additionally, ECB President Christine Lagarde signaled that the central bank is prepared to maintain accommodative policies while supporting fiscal coordination across the bloc.

Meanwhile, the British pound’s momentum was bolstered by stronger-than-expected retail sales data and renewed confidence in the UK economy, despite lingering Brexit trade adjustments. The Bank of England’s decision to hold rates steady last week while emphasizing economic resilience also provided a tailwind for sterling.

Market Implications and Investor Outlook

Currency markets have become increasingly sensitive to geopolitical developments, especially those tied to trade policy and monetary direction. As the Federal Reserve appears less aggressive than initially forecast and U.S. inflation shows signs of slowing, investors are recalibrating their positions — favoring currencies like the euro and pound that are backed by clearer central bank roadmaps and improving regional fundamentals.

According to Bloomberg FX Analytics, speculative positions on the euro have turned net-long for the first time in five months, while hedge funds have reduced net-long bets on the U.S. dollar by 12% in the past two weeks.

Broader Economic Signals

The dollar’s decline also signals broader questions about U.S. economic leadership and global investor sentiment. A weaker dollar can help boost U.S. exports by making them more competitive internationally, but it also risks import-driven inflation and reduced foreign investment appeal.

The market’s current trajectory could influence:

• Multinational earnings in Q2 reports
• Commodity prices, particularly oil and gold (both priced in dollars)
• Emerging market currencies, which typically benefit from a softer dollar

Shifting Power in Currency Markets

As international currency dynamics shift, the euro and pound are emerging as resilient alternatives amid uncertainty surrounding U.S. fiscal and trade strategy. With the dollar losing steam and no clear reversal in sight, the global economy could be entering a new phase of realignment — one where America’s currency dominance is no longer guaranteed, and European economies are finding renewed footing in global markets.

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