What’s driving the euro to outperform USD for 2nd year in a row?

The euro is beating the dollar for the second straight year, and the numbers are clear. The euro opened at 1.1872 and the previous close was 1.1868.

According to data from TradingView, the euro’s year-to-date return stands at 0.91%. And during Monday’s session, price traded between 1.1849 and 1.1878. Over the past 52 weeks, it has ranged from 1.0360 to 1.2081.

The dollar has dropped 1.3% this year against a basket of peers that includes the euro and the pound. That follows a 9% fall in 2025. The dollar now sits close to a four-year low.

Deutsche Bank challenges the dollar safe-haven story

Deutsche Bank says the old belief that the dollar rallies when stocks fall is not holding up. George Saravelos, global head of FX research at the bank, wrote in a note dated February 11 that many investors assume the dollar rises during risk aversion.

George said a simple chart of the dollar against equities shows that is not true. He said the average correlation between the USD and equities has historically been close to zero. Over the past year, he said the dollar has once again decoupled from the S&P.

George pointed to rising risk inside US equities. He described “AI concentration and cannibalization risks.” Software stocks were hit hard earlier this month after Anthropic launched new AI tools that can handle professional workflows. Many large software firms sell those workflows as core products.

The S&P 500 Software and Services Index is down nearly 20% this year. When equity risk rises, and the dollar does not rally, the old safe-haven script weakens. That helps the euro.

Investors dump dollar exposure as policy risk builds

Fund managers are holding the most bearish dollar positions in more than a decade. A Bank of America survey released Friday showed exposure to the dollar has fallen below last April’s low point.

That was when President Donald Trump, the 47th president who won the 2024 election, unsettled markets with sweeping tariffs. The survey said positioning has been the most negative since at least 2012.

The dollar’s weakness is not just survey talk. Options data from CME Group shows bets against the dollar now exceed bullish wagers. That reverses the pattern seen in the fourth quarter of 2025.

Large asset managers say pension funds and other real money investors are hedging against further losses or cutting exposure to dollar assets.

Risk reversals tied to further dollar depreciation against the euro have reached levels seen only during the Covid-19 shock and after last April’s tariff announcements. Investors are paying up for protection against more downside.

Growth data also plays a role. The Eurozone economy expanded 0.3% in the fourth quarter of 2025. That equals a 1.4% annual rate. In Asia, USD JPY rose 0.4% to 153.27 after Japan reported weak numbers.

Japan’s economy grew just 0.2% annualized in the December quarter, far below the 1.6% forecast. When Europe prints steady growth, and Japan disappoints, relative strength matters. In this environment, the euro keeps gaining ground.