Euro to Dollar 2025 Review: EUR/USD Up Sharply in 2025 as US Risks Weigh

Modified: Monday, 29 December 2025 22:01 BST - Written by David Woodsmith

STORY LINK Euro to Dollar 2025 Review: EUR/USD Up Sharply in 2025 as US Risks Weigh

The Euro to Dollar exchange rate (EUR/USD) ends the year near 1.18, marking a sharp advance from levels close to 1.04 at the start of 2025 as the dollar posted broad losses.

The move reflected stronger confidence in Euro-Zone fundamentals alongside rising concern over US policy credibility and political risk.

Banks now look to whether these forces extend into 2026 or fade as markets reassess rate paths.

EUR/USD Gains 14% in 2025

The Euro to Dollar (EUR/USD) exchange rate posted strong net gains for the year to trade near 1.18 after starting the year around 1.0360. There was strength in the Euro amid greater confidence in fundamentals while the dollar posted notable losses.

EUR/USD hit 1.18 at the beginning of July and briefly hit 4-year highs at 1.19 during the third quarter before the dollar stabilised in global markets.

Danske Bank expects renewed EUR/USD gains later next year; “Over the medium term, we maintain our outlook for EUR/USD to trend higher, underpinned by narrowing real rate differentials, a recovering European asset market, reduced global demand for restrictive monetary policy, persistent tailwinds from hedge ratio adjustments, and fading confidence in US institutions.”

It has a 12-month EUR/USD forecast of 1.23 while the consensus is for modest gains to 1.20.

During the first half of the year, there was a notable break away from a traditional driver of currency rates as the relationship between short term rates and the dollar broke down.

The ECB cut interest rates four times during the first half of the year while the Federal Reserve held rates at 4.50%, but the dollar posted sharp losses.

President Trump triggered major volatility and dollar losses after imposing reciprocal tariffs on all economies. The US and China also engaged in a hostile trade war as both sides imposed tariffs of over 100%.

The dollar was undermined by fears over the impact of tariffs on the US economy and speculation that global institutions would sell US assets.

The US and China did manage to negotiate a truce on tariffs with the most punitive rates scaled back which helped stabilise confidence. Fears over the US and global economy eased while the dollar recovered ground.

The Fed did cut interest rates three times over the second half of 2025 as concerns over the labour market increased, although the data flow was damaged by a US government shutdown.

President Trump continued to exert strong pressure on the central bank to cut rates more aggressively and continued to label Chair Powell as “too late” as the President also continued to call for Powell to resign.

Trump appointed economic adviser Miran to the Fed Board and he pushed aggressively for more substantial rate cuts, dissenting at all the meetings.

There were also longer-term reservations surrounding the threat of political interference on the US central bank.

In particular, a new Fed Chair will be appointed in May with expectations that there would be a dovish appointment, more in line with Administration policy, undermining dollar support.

The Euro gained support from expectations that the German fiscal boost would underpin the Euro-Zone economy.

Energy prices also declined which improved the terms of trade and underpinned the single currency.

At the December meeting, the ECB also revised its GDP growth forecasts higher which helped underpin the single currency.

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TAGS: Euro Dollar Forecasts