The trade war launched by Donald Trump has deeply shaken market confidence in the dollar. Despite a nearly 8% drop this year—one of its worst recent performances—the US currency is struggling to recover. The damage is done: Trump’s policy reversals on tariffs no longer reassure investors, who now view US policy as too unstable, both commercially and monetarily.

Traditionally seen as a safe haven in times of uncertainty, the dollar is no longer playing that role. This time, the risk is coming from Washington. Amid rising trade tensions, investors are reducing their exposure to American assets—especially equities, Treasury bonds, and the dollar itself.

Tariffs may also trigger a redirection of global capital flows. Many countries that once invested their financial reserves in US assets are now considering bringing those funds back home. The result: the dollar is weakening, along with the markets it once supported.

In this unstable climate, the euro is emerging as a winner. Its effective value is reaching new highs, driven by renewed investor interest. Some banks expect the euro to stabilise between $1.10 and $1.18 this year; Goldman Sachs is even forecasting $1.20 by early 2026.

Fears of stagflation in the US—economic stagnation combined with high inflation—are fuelling this trend. At the same time, Germany is breaking with its usual fiscal discipline and investing heavily, particularly in defence, helping to stimulate growth across the eurozone.

The announcement of potential European support measures, in the event of failed trade negotiations, is further reinforcing this dynamic. Foreign capital is shifting away from the US towards European stock markets, as evidenced by a remarkable performance gap: +11% for the Euro Stoxx 50 versus -4% for the S&P 500.

Despite higher interest rates in the United States, the dollar is losing its appeal. Volatility in the US bond markets, concerns over public debt, and political uncertainty are weighing on investor confidence. There is growing caution towards an historically overvalued dollar, whose strength once relied on the solid performance of US assets.

Behind the dollar’s decline may lie a calculated strategy by Donald Trump. His economic adviser, Stephen Miran, advocates using tariffs as a bargaining tool for monetary negotiations. The objective: to pressure trade partners into revaluing their currencies while easing the strain of an overvalued dollar—something Trump blames for America’s industrial decline.

Washington could thus tie tariff reductions to commitments on exchange rates or collective security, aiming to reverse the “strong dollar” dynamic that hampers US exports.

But this strategy could backfire on the United States. Europe is increasingly concerned about the weakening independence of the Federal Reserve and its ability to act as a stabilising force in times of crisis. This uncertainty is fuelling a climate of mistrust, seen in rising demand for gold and declining appetite for the dollar.

Even Goldman Sachs has raised the alarm: the deterioration of US institutions is undermining the “exorbitant privilege” of the dollar and dollar-denominated assets. This trend could become entrenched.

Whether intentional or not, the dollar’s retreat on the global stage may mark a turning point. A gradual questioning of its monetary hegemony is now underway—with a potential rebalancing of power in global markets on the horizon.