Watching the foreign exchange market in the spring of 2026 presents an uncomfortable paradox for traditional economics manuals. The dollar, the epicenter of the international monetary system, has accumulated a depreciation of more than 11% since early 2025 and allows its exchange rate with the euro to move around 1.17 USD/EUR. All this despite the fact that the United States maintains a clear differential in growth, interest rates, and financial depth compared to the eurozone. So why doesn’t the greenback capitalize on its advantages?
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On paper, the bullish case remains convincing. The U.S. economy will grow at a rate close to +2.5% in 2026, compared to Europe, which will not reach 1%. The Federal Reserve keeps rates in the 3.50%–3.75% range, while the ECB sets its deposit facility at 2%. Even in the fixed income market, the Treasury or ten-year bond offers a premium close to 130 basis points over the German Bund. In any static analysis, this differential should support the dollar.
No new differential impulse is anticipated, but a gradual convergence”
However, currencies do not price absolute strength, but relative surprise. And the market does not compare levels, but expected trajectories. Hence much of the U.S. exceptionalism – the theory pointing to the prevalence of the United States in growth and innovation – is already priced in, and investors perceive that its margin to surprise on the upside has diminished. The forecast that the Fed will resume rate cuts after tensions in the Middle East ease reinforces this reading: no new differential impulse is anticipated, but a gradual convergence.
In addition to this erosion of surprise, there is also a more structural brake: fiscal dynamics. With a public deficit around 6.0% of GDP in the U.S., the Treasury needs to issue increasing volumes of debt to cover a fiscal hole that comfortably exceeds one and a half trillion dollars. This “flood of paper” has not caused a massive flight from the dollar, but it has reduced the marginal appetite of foreign investors, especially in an environment of greater competition for global returns.
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The dollar’s weight in official reserves remains dominant, although it has gradually declined to current levels of 57%”
Central banks, for their part, are not abandoning the dollar, but are diversifying their source of safe assets. The weight of the greenback in official reserves remains dominant, although it has gradually declined to current levels of 57%, while their gold purchases remain high. This change does not question the global monetary architecture, but it reduces a source of structural demand precisely when the supply of dollar-denominated assets is increasing.
Not even recent geopolitical episodes have managed to reverse this dynamic. The dollar retains safe-haven characteristics, but its reaction has been shorter and less forceful than in previous crises, a sign that its ability to absorb shocks has weakened.
In short, the dollar does not fall due to lack of power, but because this was already priced in advance. Until it regains the ability to surprise — in growth, monetary policy, or fiscal discipline — any rebound will tend to fade. A euro-dollar moving in the 1.15-1.20 USD/EUR range does not challenge the global monetary order; it simply reminds us that, in currency markets, inherited strength weighs less than the next marginal disappointment.
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