The U.S. dollar is weakening again against the euro and China’s yuan, as European and Chinese leaders push to expand the global use of their currencies amid growing doubts about the dollar’s dominance.
Recent exchange-rate moves appear to support those ambitions—and, for now, do not seem to alarm Washington.
Ahead of the Lunar New Year, China’s offshore yuan rose to its strongest level against the dollar in nearly three years. The dollar has fallen about 6% against the yuan since early last year.
The euro’s gains have been even sharper. It has risen about 15% against the dollar over the same period and is trading near a five-year high above $1.20.
Officials in both Europe and China have openly encouraged these shifts. Last week, European Central Bank sources said the ECB plans to support a “global euro” by expanding euro liquidity abroad, making the currency easier and cheaper to use outside the euro zone.
Austria’s central bank governor Martin Kocher said this week that the euro is drawing increased interest from global counterparts, helping to explain its rise and its growing role as a safe-haven currency.
China has made similar moves. President Xi Jinping recently renewed calls for a more “multipolar” global system and emphasized Beijing’s goal of promoting a stronger, more widely used yuan in trade, finance, and reserves.
Both regions appear to sense a reassessment by global investors of the dollar’s long-standing dominance, following a year of aggressive and unpredictable U.S. trade and foreign policy.
U.S. officials have shown little resistance to a weaker dollar. President Donald Trump has praised the recent decline, calling it “great.” Treasury Secretary Scott Bessent has repeated the traditional “strong dollar” policy line, while stressing that it refers to long-term economic strength rather than short-term exchange rates.
Questions remain about whether currency considerations are embedded in U.S. bilateral trade talks, particularly in Asia. Still, markets continue to push the dollar lower.
Notably, the euro-yuan exchange rate has remained largely stable since last year, despite sharp dollar moves. That stability matters given the deep trade ties between Europe and China.
The yuan makes up about 15.5% of the ECB’s trade-weighted euro basket, close to the dollar’s share. Likewise, the euro accounts for roughly 18% of China’s trade-weighted yuan basket, similar to the dollar’s weight.
For investors, currency trends are increasingly shaping decisions. A sustained rise in the euro or yuan could offset the higher yields offered by U.S. Treasury bonds, making European or Chinese government debt more attractive.
Analysts note that if the dollar continues to weaken, the yield advantage of U.S. bonds could erode quickly—especially against China, where inflation has remained significantly lower than in the United States.
A weaker dollar may suit many policymakers for now. But currency markets can move fast, and prolonged shifts often bring unintended consequences. Investors and governments alike are watching closely.
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