The euro continues to strengthen against the dollar in the new year. Against the British pound, the European currency is gradually losing ground. Last week, the euro-dollar exchange rate grazed the $1,20 mark, its highest level in almost five years. In the second half of 2025, the euro rapidly strengthened, and this upward trend looks set to continue into the new year.
The movement is primarily driven by dollar weakness. Rising geopolitical tensions are causing investors to exit US stocks and bonds. Concerns about US government finances are also mounting, according to reports. The market is already talking about an "anti-dollar year." ABN Amro expects the euro/dollar exchange rate to rise to around 1,25 by the end of 2026, and that expectation appears rather cautious.
Pension
After three consecutive interest rate cuts, the US Federal Reserve (Fed) has held interest rates stable within a range of 3,50% to 3,75%, despite political pressure from the Trump administration to lower them further. The European Central Bank will also issue a new interest rate decision later this week. The key interest rate in the eurozone is currently at 2% and is expected to remain unchanged. Despite the higher interest rates in the US, this is not currently supporting the dollar. In the current market, analysts indicate that effect is being overshadowed by other factors.
Euro pound
Against the British pound, the euro is showing a different image Since the autumn, the euro has weakened against the pound, partly due to persistent inflation in the United Kingdom and the expectation that the Bank of England will keep interest rates high for longer than the ECB. As a result, the interest rate advantage remains with the UK, which supports the pound. For trade with the United Kingdom, this means that European exporters are less affected by the strong euro than when buyers pay in dollars.
Dollar is leading
A stronger euro against the dollar is unfavorable for agricultural exports, as many agricultural products are traded in dollars. For buyers outside the eurozone, prices rise, weakening the competitive position of European exporters. European grain exports, for example, have been hampered by this for some time. The dairy and meat trade are also signaling that the stronger euro is slowing exports.