For the first time in years, the euro is back in the driving seat against the US currency, trading around $1.20. That shift is rattling some exporters, delighting energy importers, and forcing investors to rethink how they manage risk across the Atlantic.
What 1.20 dollars for 1 euro actually means
Exchange rates sound abstract, but they touch almost every price you see, from petrol to plane tickets. At the start of 2025, one euro bought just $0.98 – close to one‑for‑one parity. Today it buys about $1.20, after the dollar shed more than 15% of its value in a year.
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A stronger euro means European buyers need fewer euros to pay the same dollar invoice – from oil tankers to iPhones.
This reversal is not coming out of nowhere. A long‑running dispute between the White House and the Federal Reserve over how quickly to cut interest rates has weighed on the dollar. Political headlines about pressure on the Fed, and worries over US fiscal deficits, add further doubts for global investors.
On a chart, the euro–dollar pair has always looked like a jagged mountain range. True parity has been rare. The current level is not a historical extreme, but the speed of the move is what catches economists’ attention.
Cheaper energy imports: Europe’s hidden win
For Europe, and especially for a big energy importer like France, a weaker dollar is a financial tailwind. Oil and gas contracts are still largely priced in dollars on global markets.
When the dollar drops, the same barrel of oil costs fewer euros. That matters for governments, utilities, airlines and, eventually, households.
Lower dollar-priced energy bills feed directly into lower production costs for European companies, from factories to farms.
Cheaper energy has two knock‑on effects:
- It eases inflation pressure in the eurozone.
- It improves the competitiveness of firms that sell inside the euro area, where they don’t need to quote prices in dollars.
The story doesn’t stop at oil and gas. A large share of Chinese exports are billed in dollars, even if they end up in Europe. The same goes for many raw materials and industrial components. When the dollar weakens, part of the import bill from Asia quietly shrinks.
That can tilt the playing field in subtle ways. Cheaper imported parts help European manufacturers keep prices in check. At the same time, low-cost Chinese goods become even more attractive to retailers, strengthening their grip in certain sectors where local alternatives are limited.
Good news for European shoppers, less so for some exporters
Consumers across the euro area feel the shift most clearly when they look at imported branded goods from the US: electronics, tech gear, software subscriptions, even some fashion labels.
When $1,000 becomes €830 instead of €1,000, retailers have room either to cut prices or boost their margins – and often a bit of both.
That’s a straightforward win for shoppers. But someone has to be on the losing side of the equation, and that’s often exporters who are trying to sell into the United States or other dollar-linked economies.
Aeronautics and luxury: protected, but not immune
Aircraft makers and big luxury groups are obvious candidates for pain from a weaker dollar. They sell expensive, often dollar‑denominated products into the US and Asia. A stronger euro makes their goods pricier for foreign buyers.
Yet these giants rarely fly blind on currency risk. They make heavy use of hedging strategies – essentially financial contracts that lock in a future exchange rate and cushion swings.
Luxury brands also benefit from something smaller exporters do not have: customers who are less price‑sensitive. Someone willing to spend thousands on a handbag or watch is unlikely to change their mind because of a small currency‑driven price adjustment.
Agri-food: where the pain bites harder
The sector that feels the pressure most is food and drink, especially high‑value products heading for American supermarket shelves and wine lists. A rising euro makes a bottle of French wine, olive oil or cheese relatively more expensive than a Californian, Argentine or domestic alternative.
In the US aisle, a few extra dollars on a European label can nudge shoppers toward a cheaper bottle from closer to home.
Producers can try to absorb some of the hit through thinner margins, but that has limits. On top of exchange rates, they also face tariffs and regulatory hurdles, making the US market harder to crack during periods of euro strength.
Investors caught between Wall Street and the exchange rate
For European savers and investors, the dollar slide adds another layer to the usual “US vs Europe” portfolio debate.
On one hand, Wall Street has continued to outperform. In 2025, the tech‑heavy Nasdaq gained roughly 22%. Yet the dollar lost around 15% against the euro in the same timeframe.
| Asset | Local currency performance | Euro-based investor result* |
|---|---|---|
| Nasdaq (US tech index) | +22% | ~+7% |
| Dollar vs euro | -15% | Euro stronger |
*Approximate figures, combining market gain and currency loss.
So an investor in Paris or Berlin who held a Nasdaq ETF still made money, but less than the headline index suggests once the weaker dollar is taken into account.
Tax‑advantaged accounts in France and other European countries often focus on domestic and eurozone stocks. Those who use more flexible brokerage accounts to buy US shares or dollar ETFs feel the exchange‑rate impact much more directly, especially when they sell and convert back to euros.
Currency risk is invisible on good days, then very visible the moment you hit the “sell” button.
Analysts generally warn against panic‑selling US assets during a dollar slump. If US interest rates fall later in the year under a new Fed leadership, the dollar could regain some ground, partly offsetting recent losses.
Why the dollar is down: rates, politics and sentiment
Behind the current level around $1.20 to the euro lies a mix of economic and political factors:
- Interest rates: Markets expect the Fed to cut faster or deeper than the European Central Bank, shrinking the yield advantage of US assets.
- Political tension: Public clashes between the White House and the Fed raise doubts about policy predictability.
- Debt concerns: Persistent US deficits make some investors wary of holding too many dollar assets.
Any change in those expectations can swing the currency again. A surprise tightening from the Fed, or a shock in eurozone politics, could push the exchange rate back toward parity over time.
Key terms that help make sense of the shift
Two concepts are particularly useful when trying to understand who wins and who loses from a weaker dollar.
Exchange-rate hedging
Hedging is essentially buying insurance against currency swings. A European exporter selling $10 million worth of goods might agree in advance with a bank to convert those dollars into euros at a pre‑set rate in six months’ time.
If the dollar tumbles in the meantime, the company still receives the agreed euro amount. The flip side is that if the dollar rallies, it misses out on the upside. Large listed groups use these tools routinely; smaller firms often do not, leaving them more exposed.
Competitiveness versus purchasing power
When the euro is strong:
- European purchasing power for imports rises – energy, raw materials and foreign goods are cheaper.
- European price competitiveness on exports falls – products become harder to sell abroad at the same margin.
Policymakers constantly juggle these two forces. A slightly stronger euro can help tame inflation and support households. A very strong one for a long time can squeeze jobs in export‑heavy regions.
Practical scenarios for households and businesses
Take a family planning a US holiday. With the euro at $1.20 instead of $1.00, a $4,000 trip – hotels, car hire, meals – effectively costs around €3,330 instead of €4,000. That difference can pay for extra nights or better accommodation.
Now look at a mid‑size European food producer shipping to the US. If a case of premium bottled water sold wholesale for $40, that brought in €40 at parity. At $1.20 to the euro, the same $40 is now about €33. The company must either raise the dollar price and risk losing shelf space, or accept a thinner margin.
The same move in the exchange rate that gives a tourist an extra cocktail can wipe out a manufacturer’s annual profit margin.
For investors, holding both euro and dollar assets can smooth the ride. A weaker dollar cuts the translated returns from US stocks, yet those stocks are often the ones driving global growth. Currency‑hedged ETFs offer a middle ground, trading off some potential benefit from future dollar strength for reduced volatility today.
The current 1.20 level does not lock in anyone’s fate. Exchange rates shift with elections, central bank decisions and market nerves. For now, though, the euro’s strength means cheaper energy for Europe, a trickier path for some exporters, and a more complicated spreadsheet for anyone investing across the Atlantic.
