LONDON, Feb 11 - The U.S. dollar has resumed a downward trajectory versus the euro and the Chinese renminbi, at a time when policymakers in Europe and China are actively promoting greater global use of their currencies. Those two regions appear to be seizing on growing doubts about the dollar to advance plans that would make the euro and yuan more attractive in international trade, finance and reserves.
With Lunar New Year celebrations approaching, the offshore yuan has climbed to levels versus the dollar not seen in nearly three years. Since the start of last year the greenback has fallen about 6% against the renminbi. Over the same interval the euro has surged roughly 15% against the dollar, trading close to a five-year peak above $1.20 recorded last month.
These exchange rate trends align with recent public statements and policy moves from both regions. ECB officials told reporters last Thursday that the bank plans to follow through on a longstanding ambition for a "global euro" by expanding euro liquidity provision to more countries, with the intention of making it cheaper and easier to transact in euros overseas and thereby strengthening the currency's international role.
On Tuesday this week, Austria's central bank governor Martin Kocher said the ECB should be prepared for a substantial change. "We are seeing more interest in the euro by counterparts and I think that’s one of the reasons why we’re seeing some appreciation of the euro, why the euro is becoming more of a safe haven," he said.
China has been similarly vocal. On Feb 1, its president reiterated Beijing's ambition for a "powerful currency" that sees broader use across global trade, finance and reserve holdings - comments delivered amid a flurry of high-level trade visits and statements calling for a more equal, multipolar international order.
Both Europe and China seem to sense that global investors are reconsidering the dollar's long-standing dominance following a year marked by assertive U.S. diplomacy and trade moves. That reassessment appears to have created an opening to accelerate efforts at currency internationalization.
Welcoming a softer dollar is one matter; the broader implications of a shift in which elements of the U.S. administration accept or even favor a weaker dollar are another. Market observers note that Washington may be tolerant of some dollar depreciation if it accompanies a rebalancing of cross-border investment flows consistent with a reconfiguration of global trade and imbalances.
Former President Trump described January's sharp dollar drop as "great." Treasury Secretary Scott Bessent has reiterated the traditional "strong dollar" phrase, but he has qualified it by saying the expression need not refer to current exchange rates; instead he defines a "strong dollar" as the product of policies that ultimately foster economic strength.
Questions persist about whether aspects of the bilateral trade deals the United States has been negotiating, particularly across Asia, contain any implicit understandings about exchange rates. Those details have not been clarified in public statements.
Market behaviour, however, shows little sign of being swayed by private negotiations. The dollar's recent New Year retreat has stuck in investor memory and sentiment, and trading patterns continue to favour the euro and yuan.
Notably, the bilateral euro-yuan rate has been surprisingly stable since last April, despite the broader dollar dislocations that followed U.S. tariff developments. That relative stability between two highly interdependent trading regions matters, even as each currency strengthens against the dollar.
Institutional trade-weighted baskets underline how interconnected the three currencies are in practical terms. The yuan makes up 15.5% of the European Central Bank's trade-weighted euro basket, close to the 17.4% share held by the dollar. Conversely, the euro represents about 18% of China's trade-weighted yuan basket, a share nearly on par with the dollar's portion. In the Federal Reserve's broad trade-weighted dollar basket the euro carries a 21% weighting, more than double the yuan's 10% weight. Given those overlaps, meaningful dollar weakness against either the euro or the yuan can quickly transmit to the other currency.
For cross-border investors, particularly those allocating into government bonds, the prospect of persistent currency appreciation matters materially when weighing U.S. Treasury yields against European or Chinese sovereign debt. Charles Gave of Gavekal Research highlighted the arithmetic: a 220 basis-point yield premium on five-year U.S. Treasuries over equivalent Chinese bonds would be effectively offset by another 10% drop in the dollar against the yuan between now and 2031, making lower-yielding Chinese debt more competitive in return terms. Gave also noted that Chinese inflation has been at least 200 basis points below U.S. inflation for more than five years, a differential that could justify some yuan appreciation on fundamentals.
Adding to downward pressure on the dollar, there were reports this week that Chinese regulators had encouraged domestic banks and institutional investors to reconsider heavy concentrations in U.S. Treasuries - a move that contributed to the negative tone surrounding the dollar.
For euro-denominated debt, currency expectations may make investor math even more compelling. Stronger exchange rates could, over time, push the ECB toward looser policy settings, which in turn affects real yields and relative attractiveness versus U.S. instruments.
The current constellation of developments - public policy signals, changing investor preferences, and regulatory nudges - suggests that multiple actors are content, at least for now, to see some dollar weakness. That may mean no formal grand bargain or coordinated exchange-rate accord is required to rebalance what some view as a decade-plus of dollar overvaluation.
Nonetheless, market dynamics can accelerate rapidly. Investors and policymakers should monitor currency flows, central bank liquidity initiatives, and regulatory guidance closely, as shifts in sentiment and positioning have the potential to amplify moves in short order.