In the era of globalization, the U.S. dollar has been the most important financial dominant force globally since World War II. The euro, on the other hand, is a later development. The euro was established in the Maastricht Treaty, signed in 1992 by the European Union to create an Economic and Monetary Union of Europe (EMU). It officially began on January 1, 1999, as the currency for 20 EU countries, with a population of 300 million people using it. Europeans pride themselves on the fact that the euro is the most significant result of European monetary reform since the Roman Empire. During the peak of globalization, for many years after the euro's introduction, Europe openly declared that the euro was the primary force to counterbalance and share the global market with the U.S. They spared no effort in promoting and enhancing the euro's status as the world's main reserve currency. This narrative was only denied by Europeans after the Trump administration took office, in an attempt to downplay the longstanding financial rivalry that had existed for decades.
After Trump took office, as the U.S.'s stance toward Europe became clearer, the trend of ideological divergence between the U.S. and Europe grew more apparent. Consequently, the confrontation between the U.S. and Europe is shifting from politics and ideology to economics, industries, and finance. This has led to the question: Could Europe potentially short the U.S. dollar to achieve certain political objectives? This question not only involves the operations of financial markets but also touches on geopolitical maneuvering and competition in the international monetary system.
Based on long-term information tracking and research, ANBOUND's researchers will attempt to answer this complex question from three dimensions: possible motives, practical constraints, and historical trajectories.
First, from the perspective of possible motives, Europe clearly has certain geopolitical considerations. On one hand, it is to weaken the dollar's hegemony. Since the euro's creation in 1999, Europe has hoped to position it as an international reserve currency capable of challenging the U.S. dollar. Therefore, making use of the current U.S. inflation and economic situation to short the dollar and indirectly increase the euro's relative attractiveness, stabilize the euro's exchange rate, and thereby enhance the EU's voice in the global economy is a theoretically possible strategy.
In fact, as early as 2021, the EU began formulating plans to reduce its dependence on the U.S. dollar and to strengthen the euro's position in international payments and reserves. If the U.S. dollar were to be weakened through financial market actions, such a move could naturally be seen as a long-term strategic political consideration.
On the other hand, it also serves as a countermeasure to the unilateral policies of the U.S. Trump administration. In recent years, certain U.S. unilateral policies have triggered dissatisfaction in Europe. For example, U.S. trade tariffs on the EU, sanctions on Russia, and the use of the dollar system to "weaponize" and cut off SWIFT payment channels have led Europe to feel restricted in its financial sovereignty. Especially after the outbreak of the Russia-Ukraine conflict, U.S.-led sanctions caused European energy prices to surge and put economic pressure on the region. The strength of the dollar further exacerbated these issues. Against this backdrop, some European countries or institutions might believe that weakening the dollar could help alleviate economic pressure. For instance, a weaker dollar could significantly reduce Europe's import costs and ease inflationary burdens. This consideration, of course, also carries a certain geopolitical undertone.
Secondly, from the perspective of financial realities and constraints, Europe’s political motives face multiple obstacles. While the idea of weakening the dollar through shorting it to achieve political goals is theoretically possible, it faces at least two practical barriers. On one hand, there is a mutual dependency between the European and American economies. Significant fluctuations in the dollar could trigger turbulence in global financial markets, negatively impacting Europe's own exports and investments. For example, export-oriented economies within the eurozone countries, such as Germany, are highly dependent on a stable exchange rate environment. If the dollar depreciates sharply, it could reduce the profitability of European products priced in dollars. Therefore, taking the risk of shorting the dollar for geopolitical purposes might ultimately backfire, leading to unintended negative consequences for Europe.
On the other hand, there is insufficient coordination within Europe. The EU is not a fully unified economic entity. While eurozone countries implement a common monetary policy, fiscal decision-making remains under the control of individual member states. Due to differences in monetary policies and financial strategies among eurozone countries, it is difficult to achieve high levels of coordination. For example, Germany is more focused on export stability, while France may be more inclined to enhance the euro's global status. This divergence in interests makes it difficult for the EU to form a united front to carry out actions like "shorting the dollar" through market operations. The primary mission of the European Central Bank (ECB) is to maintain price stability within the eurozone, not to directly intervene in the dollar's exchange rate, which further limits the feasibility of acting on these political motives.
Finally, from a historical trajectory perspective, market behavior plays a primary role. Looking at historical data and market trends, shorting the dollar has mainly been driven by the actions of financial institutions and investors, influenced by economic factors rather than political motivations.
First, in 2022, the euro reached a low point amid the strength of the U.S. dollar. In 2022, the Russia-Ukraine conflict led to an energy crisis in Europe, and the euro-to-dollar exchange rate fell to nearly a 20-year low, close to 1:0.95. This was due to Europe's economic weakness and the U.S. interest rate hike cycle, which drove the dollar's appreciation. The Federal Reserve's interest rate hikes from 2021 to 2023 significantly boosted the value of the dollar, while the ECB, due to slow economic recovery, maintained a relatively loose monetary policy, putting pressure on the euro. At that time, the market was more focused on shorting the euro rather than the dollar.
Second, Europe’s public stance plays a crucial role. While the EU has repeatedly expressed dissatisfaction and concern over the dominance of the U.S. dollar, these expressions have largely remained at the level of policy statements rather than direct market actions to counter it. Moreover, the actual efforts of the U.S. and Europe have been more focused on enhancing the euro's position, such as promoting euro-denominated transactions, rather than directly weakening the dollar. For instance, in 2023, the EU signed energy agreements in euros with some countries, aiming to reduce reliance on the dollar. These measures represent public strategic adjustments, not covert political objectives achieved through shorting the dollar.
As things stand, the sharp rise of the euro against the dollar from 1.02 to 1.08-1.09 in March 2025 is certainly extraordinary. The underlying implications might suggest that while Europe’s financial efforts to short the dollar can generally be seen as a market-driven action, there are evident geopolitical motives at play, possibly indicating a certain degree of cooperation between political and business sectors. Looking ahead, as the confrontation between the U.S. and Europe deepens and becomes more entrenched, coupled with Europe's strong criticism of the U.S. under the Trump administration, any potential changes in the financial relationship between the U.S. and Europe are worth close attention.
From China's perspective on this international financial game, it may play an active role and even adopt a slightly offensive stance, which could significantly help enhance its influence in the global financial arena. International financial relations are an important aspect of geopolitics. If China focuses on future U.S.-China relations, it may align itself with the U.S. dollar zone and support the dollar's appreciation. However, if China shifts its focus to Europe-China relations, it could show support for the euro. As the world's largest market with substantial trade volumes, China's financial stance and support will have a considerable impact on the global financial market. However, China must exercise caution in terms of currency manipulation and financial strategies. Nevertheless, actively and strategically participating in these developments would undoubtedly be beneficial for China.
Final analysis conclusion:
Europe's potential move to short the dollar may indeed be driven by certain geopolitical motives. For China, in the context of the global financial market, it can leverage its influence on multiple fronts. By more actively utilizing its substantial trade volume and economic influence, China can play a more prominent role in the international financial sector. This involvement would not only reflect China’s value as a global power but also highlight its growing financial strength.
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Xia Ri is an Industry Researcher at ANBOUND, an independent think tank.
