Euro rises 13% in one year as US dollar falls 11%

Dollar falls 11% as euro returns to pre-Ukraine war levels

A simple calculation summarizes the silent earthquake shaking currency markets: the euro has appreciated by around 13% against the dollar over the last year, equivalent to an approximately 11% drop for the greenback. For any Spanish investor with a portfolio in the US stock market, this figure is not an academic curiosity: it is a direct discount on returns. Eleven points evaporate when converting profits back into euros.

The data, on its own, allows for several readings. The first is that the exchange rate has returned to the zone where it traded before the outbreak of the war in Ukraine and the European energy crisis. And that is where the bewilderment begins. Because if the euro weakened then due to the energy shock and the conflict, and neither of those circumstances has disappeared, the logical question is why the single currency has regained lost ground. Someone will have to explain it.

Why is the dollar falling if Europe's problems persist?

The paradox is the core of the matter. The energy crisis that hit Europe trinc the Russian invasion has not ended, and the war continues. However, the euro has returned to levels that many considered a temporary privilege. The most common explanation is that it is not the euro strengthening, but the dollar weakening. In other words: Europe is not doing better; it has simply stopped being the worst student in the class.

Among the hypotheses circulating regarding the causes of this greenback weakness, three are frequently mentioned. The first is that the euro started from an abnormally low position, distorted by the energy shock, and that the return to the miccionan is a simple normalization. The second points to political pressure on the Federal Reserve (the US central bank) to lower interest rates, an interference that markets read as a sign that the institution is losing its independence. The third, perhaps the most technical, points to the US Supreme Court and the possibility of it overturning current tariffs, which would remove a factor that traditionally supports a currency's value by discouraging imports.

None of the three hypotheses closes the case. And in economics, that usually means there is more than one cause operating at once.

The direct effect on the Spanish investor's portfolio

For those with money in the US stock market, exchange rate movements act as a silent tax or an unexpected bonus, depending on which way the wind blows. With the euro appreciating 13% year-on-year, dollar-denominated returns are cut in euros by almost the same proportion. 11% less, to be precise. That is the number worth remembering.

The impact extends beyond portfolios. A weak dollar makes US imports cheaper for Europeans and makes European exports to the US more expensive. For the Spanish tourist, the effect is the opposite: traveling to New York or buying products made there is cheaper than a year ago. For the exporter, margins tighten. The same currency that eases life for some squeezes others, and that asymmetry is why no government celebrates or laments the movement without nuance.

Some argue that a weak dollar is precisely what the US administration seeks to reindustrialize the country and reduce its trade deficit. If the currency falls, its products become more competitive abroad. It is a deliberate policy, not an accident. Or so they say.

The dollar at its historical average: collapse or normalization?

This is where interpretations diverge most sharply. One school of thought argues that speaking of a collapse is exaggerated: the exchange rate is at its 35-year average and has broken a bullish trend that lasted too long. From this perspective, the anomaly was the strong dollar, not the other way around. They recall times when a euro bought 1.50 dollars and the United States was a cheap destination for the European visitor.

The opposing view replies that comparing it to the historical average ignores the context. If Europe is dragging an energy crisis, debt tensions, and a war on its border, it would be logical for the dollar to remain strong. That it has returned to the parity seen before the conflict implies that the greenback has weakened as much as the euro did in its time. Two weaknesses offsetting each other does not produce a healthy equilibrium, but an optical illusion.

Amidst the noise, one data point is worth keeping in mind: the Swiss franc. While the euro and the dollar dance around each other without drifting too far, the Swiss currency is rising. And when the franc rises, it is not because Switzerland is doing better, but because someone with a lot of money is seeking refuge. The uncomfortable question is where that capital is fleeing from.

Tariffs, interest rates, and the shadow of recession

The US macroeconomic picture adds layers to the issue. Sustained public deficits, an increase in net exports due to the collapse of imports caused by tariffs, and the investment boom in artificial intelligence paint a landscape of tailwinds that, nevertheless, has not prevented net job destruction in the last quarter. 4% growth with job destruction is a combination that confuses friend and foe alike.

Pressure on the Federal Reserve to cut rates adds an element of institutional uncertainty. A central bank that yields to political pressure loses credibility, and credibility is a currency's most valuable asset. If markets begin to doubt that the Fed acts independently, the dollar pays the price. A crisis is not needed for this to happen; suspicion is enough.

Meanwhile, gold and silver are rising. Precious metals are often the thermometer of antiestéticar: when money seeks refuge, these assets receive it. The fact that they are rising strongly while the dollar weakens suggests that not everyone believes the narrative of an orderly normalization.

The question no one answers: what if the dollar keeps falling?

The interdependence between both currencies is total. If the dollar falls, the euro rises, and European exports become more expensive. If the dollar falls too much, imported inflation in the US spikes and the Fed is forced to raise rates, which paradoxically would strengthen the greenback again. It is a pendulum with two uncomfortable extremes.

For Spain, the net effect is ambiguous. A strong euro makes energy imports cheaper, which eases the external bill. But it makes exports more expensive and hits sectors most exposed to the US market. In an economy that depends on tourism and foreign sales, the balance is delicate.

The question floating in the air is whether this movement is a one-off adjustment or the start of something deeper. Those observing capital flows toward precious metals and cryptocurrencies point to the latter. Those looking at the historical average of the exchange rate point to the former. Time will tell, but in the meantime, every month that passes without the dollar regaining ground adds weight to the thesis that something structural has changed.

The unsettling data is not the fall itself, but its combination with everything else: a weak dollar, rising gold and silver, political pressure on the Fed, and a US economy that grows while destroying jobs. None of these elements, separately, would be alarming. Together, they paint a picture that no one quite manages to explain using standard textbooks.