“A Prominent Global Currency Beats Bitcoin’s Performance, Suggesting More Upside Ahead: Macro Markets.”
Euro’s Surge Competes with Bitcoin as Investors Shift Away from Dollar
Rising concerns over U.S. fiscal stability and expectations that the European Central Bank (ECB) is nearing the end of its rate-cut cycle have propelled the euro higher, prompting global investors to rethink their reliance on the U.S. dollar.
What has traditionally been a stable currency pair is now matching bitcoin’s volatility and performance, surprising many in financial markets.
In June, EUR/USD advanced almost 4%, finishing at 1.1786 and outpacing bitcoin’s 2.4% gain for the month. Both assets have now risen over 13% in 2025, highlighting a significant investor shift toward alternatives to the dollar.
Analysts believe there’s still upside potential for the euro, which could benefit euro-denominated stablecoins that are already capitalizing on the currency’s strength.
“EUR/USD might face resistance around 1.22 to 1.23,” said Marc Ostwald, chief economist and global strategist at ADM Investor Services International, adding that optimism has grown as Germany considers relaxing its strict debt ceiling to spur growth.
Europe Gains Focus as U.S. Fiscal Risks Mount
The long-held narrative of U.S. exceptionalism, which has underpinned dollar strength, is showing signs of fading under President Donald Trump’s second term. Worries over ballooning deficits and rising debt costs are feeding what some analysts describe as a growing “fiscal scare.”
Meanwhile, Germany is increasingly viewed as a stabilizing force.
Earlier this year, German leaders announced a significant fiscal plan, which includes excluding defense spending exceeding 1% of GDP from debt restrictions and creating a €500 billion infrastructure fund over twelve years. €100 billion will immediately go toward the Climate Transition Fund.
The remaining €400 billion will be split, with €300 billion directed toward federal projects and €100 billion allocated to regional governments. German states will also be permitted to run annual deficits of up to 0.35% of GDP.
These policies are expected to begin contributing to German economic growth from next year, with lasting impacts into 2027 and beyond, supporting the broader eurozone economy.
In response, investors are reallocating funds toward European assets.
“Investors began with significant exposure to U.S. assets but are now increasingly turning toward European equities, especially with Germany ramping up defense and infrastructure spending,” said Marc Chandler, chief market strategist at Bannockburn Capital Markets.
Interest Rate Gaps Lose Influence
Investors’ focus on Europe’s growth prospects has reduced the impact of traditional drivers like interest rate differentials between U.S. and German bonds on the currency market.
Historically, EUR/USD has moved closely with the spread between German and U.S. two-year bond yields, but this relationship has weakened since March.
Higher yields in the U.S. no longer automatically signal economic strength; they increasingly reflect investor demands for compensation amid rising fiscal uncertainty.
“It may seem as though the dollar is moving independently of interest rates,” Chandler noted. “But in reality, the U.S. has to offer higher yields to offset concerns about policy risks and political pressure favoring a weaker dollar.”
Rates May Further Support Euro Strength
Expectations around future interest rates could keep the euro on solid footing. While investors remain focused on policy moves, the dollar’s outlook is growing less favorable.
“Rate differentials are tilting against the dollar, as the ECB seems close to ending its cuts—maybe one more to go—while the Fed could lower rates by as much as 125 basis points over the next 12–18 months if U.S. growth stalls,” Ostwald said.
Despite eight ECB rate cuts over the past year, the euro has strengthened against the dollar. Meanwhile, the Federal Reserve has held rates at 4.25%, despite President Trump pushing for deeper cuts.
This dynamic could create a wider gap in favor of the euro in the coming months.
Dollar’s Role as a Natural Hedge Wanes
The dollar has historically been a key hedge for foreign investors holding U.S. equities. But with the usual positive relationship between U.S. stocks and the dollar weakening, European pension funds and other global investors are increasingly hedging their currency risks.
This trend could help sustain the euro’s gains.
For instance, a European fund with $10,000 invested in U.S. markets would see the euro value of its investment fall if the dollar weakens. To guard against this, funds hedge by selling dollars through futures, forwards, or options—putting further downward pressure on the greenback.
“Danish pension funds raised their FX hedge ratios from 61% in January to 74% in April. There’s potential to push as high as 80%, which could help limit euro selloffs and keep the currency strong,” said Jordan Rochester, head of FICC strategy at Mizuho, in a LinkedIn post.
Analyst Enric A. observed that fewer than 20% of European institutions currently hedge their dollar exposure, leaving significant room for more euro buying if hedge ratios rise.
“Higher hedging means more euro demand and more dollar selling,” Enric commented on LinkedIn.
Similar trends are emerging in Asia, where Chandler referenced Bank for International Settlements (BIS) data showing Asian investors are also ramping up their hedging strategies.
In summary: With potential Federal Reserve rate cuts looming and foreign investors stepping up efforts to hedge their dollar exposure, the euro looks positioned to remain resilient—even as the eurozone continues to face its own economic challenges.
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