Factors That Can Strengthen or Weaken USD Against EUR

In the dynamic world of foreign exchange, most investors watch the relationship between the US Dollar (USD) and the Euro (EUR). Diverse factors influence changes in the USD/EUR exchange rate, from central bank decisions to economic data. In recent months, some events have brought more volatility to this currency pair, contributing to the fluctuations of the US Dollar against the Euro.

Recent Event Weakening the USD Against the Euro

One of the most striking recent developments has been the pronounced weakening of the US Dollar. The US Dollar Index (DXY), which gauges the dollar against a basket of six major currencies, is down nearly 10% in 2025. This is one of the worst annual performances in decades, and many retail traders using platforms like TradingView are monitoring developments like these for their forex strategies.

One of the key events in this decline is the growing concern over the Federal Reserve's independence. Investors have become increasingly anxious after political leaders suggested that future monetary policy could be directly influenced by the executive branch.

These concerns reached a boiling point in mid-June, when doubts over the Fed's autonomy prompted traders to flee to alternative safe-haven currencies such as the Euro and the Swiss Franc.

Moreover, former President Donald Trump's renewed stance on trade tariffs has further weakened the Dollar. As the July 9 deadline for suspending reciprocal tariffs approaches, markets are bracing for potential tit-for-tat measures between the US and its trading partners, especially in Europe. If imposed, these tariffs could place more strain on the Dollar.

Interestingly, while US equity markets have rebounded from their April lows and bond demand remains relatively stable, the Dollar has not followed suit.

How Central Bank Decisions Affect the Dollar

Diverse factors influence the USD/EUR pair, but at the heart of it are the decisions made by the Federal Reserve (Fed) and the European Central Bank (ECB). One of the most powerful tools these institutions use to influence their currencies is interest rate adjustments and quantitative easing (QE) programs.

When the Fed raises interest rates, it typically strengthens the dollar by attracting capital inflows seeking higher returns. Conversely, rate cuts weaken the dollar, especially when different from ECB policy.

For instance, the Fed's recent decision to hold rates steady amid mounting inflation, along with hints of potential interest rate cuts later in the year, is different from the ECB's more hawkish posture.

Similarly, quantitative easing, where central banks buy large volumes of government securities to inject liquidity into the economy, can devalue a currency. If the Fed resumes QE while the ECB tightens, the USD will be under more pressure. On the other hand, if the ECB restarts its QE program while the Fed maintains tighter conditions, the dollar gains strength.

Impact of Economic Data Releases

Another critical factor that affects the USD/EUR exchange rate and can weaken the USD against the EUR is primary economic data from the US and the Eurozone. Figures such as Consumer Price Index (CPI), Gross Domestic Product (GDP), and employment statistics are scrutinized by traders and policymakers alike.

For the dollar, strong CPI readings support a hawkish Fed stance, which can strengthen the currency. On the other hand, Eurozone inflation has remained high because of elevated food and energy prices, which can strengthen the Euro against the USD.

GDP growth data is also essential. The US economy has been resilient, but the recent quarterly figures have revealed slowing momentum, especially in consumer spending. If upcoming reports confirm weakening growth of the US economy, investor sentiment will shift away from the Dollar, causing it to weaken against the Euro.

Lastly, employment figures such as the US Non-Farm Payrolls (NFP) and the Eurozone unemployment rate indicate economic health and labor market strength. A surprise in either direction can move the exchange rate substantially. So far, US job creation has slowed but remains positive, while Eurozone employment has been more volatile.

Geopolitical Developments Shape the USD/EUR Rate

Geopolitical developments are another potent force that can weaken the USD against the EUR. The US dollar is traditionally viewed as a safe-haven currency, meaning it tends to attract capital during times of global uncertainty. However, recent events have complicated this narrative.

Concerns over the Fed's political independence have also weakened the Dollar's safe-haven appeal. If worries persist, especially during an election, they will continue to undermine trust in the US Dollar.

Meanwhile, European geopolitics plays a crucial role. There is ongoing uncertainty surrounding Ukraine, tensions in the Mediterranean, and internal EU disputes over fiscal policy, which can create downward pressure on the Euro and finally give the USD an edge.

Other global events, such as China-US relations, Middle East tensions, or global supply chain disruptions, can influence the Dollar and weaken it against the Euro.

Monitoring Key Events for Forex Trading

Central bank policies, economic data releases, and geopolitical developments influence the USD/EUR exchange rate. Recent events, such as concerns over the US trade tariffs and the Federal Reserve's independence, have caused the dollar to further weaken. Traders and analysts should closely monitor inflation trends, GDP data, labor market performance, central bank releases and other developments before making forex trades.