It was fall break in October, which meant plenty of travelers crossed the Atlantic to visit New York. One of the perks: shopping in the Big Apple had become much cheaper than at the start of the year.
The euro has climbed from nearly 1.00 dollar to about 1.16 dollar, after briefly flirting with 1.20. In other words, one euro now buys roughly 15 percent more in the United States than it did at the beginning of the year. That rise often leads people to conclude that the euro is therefore a strong currency. On closer inspection, that’s not quite right.
Although we all know this, we often forget that there are more currencies in the world than just the euro and the dollar. The common currency of the twenty European countries (soon to be twenty-one, when Bulgaria says goodbye to its own currency) has actually fallen by about 6 percent against the Swedish krona. Against the Norwegian krona, the euro is roughly where it was at the start of the year, and it has also lost ground against the Polish zloty and Czech koruna.
And then there’s the real test. The Champions League in Europe has begun, meaning every team faces a mix of opponents. Some are relatively weaker—and while it’s nice to win those matches, the true measure of strength comes when you face the top clubs: Bayern Munich, Real Madrid, Arsenal—that level.
In the currency world, the Swiss franc is the Bayern Munich of the Champions League. And when we look at the euro’s performance against that rival, the picture changes dramatically. The euro/franc exchange rate is now at its lowest level since the birth of the euro. “Lowest level” meaning the franc has never been stronger against the euro—or, put differently, the European currency has never been weaker against the “Swissie.”
If the euro truly were a stronger currency, we would see that strength reflected against more currencies than just the dollar—which, thanks to Trump’s policies, has taken a beating this year. If the euro really were strengthening, we’d see it against the Swiss franc too.
When I recently gave a lecture, someone came up to me afterward and said, “You’re worried about political pressure on the Fed—isn’t it good news that there’s no political pressure on the ECB in the eurozone?” My reply was… well.
It’s true there’s no political pressure on our central bank. But the reason there isn’t, is that it’s not needed—the ECB is already cooperating. The fact that its president posts photos on social media walking hand in hand with the president of the European Commission through the ECB’s offices, discussing eurozone policy at the bank’s own invitation, says quite a lot.
The euro is only as strong as its weakest link. And looking at the eurozone, I see those weakest links getting weaker—and I fear that, over time, even the stronger ones will be eroded by the rise of eurobonds, the joint debts of eurozone countries. I view those as a kind of financial dry rot: the more of them we have, the weaker the foundation of the monetary union—and therefore the euro—will become in the future. As a long-term investor, I feel far more comfortable with investments in the United States and Switzerland than in the eurozone, which I see as a major long-term risk for investors.
Why? Because the euro is like a house that’s up for sale and looks beautiful from the outside. Freshly painted, spotless walls and floors that seem brand new even though they’ve been there for years. The garden is immaculate—not a single blade of grass out of place to spoil the picture. But then the happy buyer receives the inspection report. The joy fades as fast as the euro’s purchasing power since 2021, and the buyer immediately invokes the escape clause in the contract. The deal falls through because the report reveals numerous serious and structural defects hiding behind the façade.
If the euro really had become stronger, we would see that strength against more currencies than just the dollar—which, due to Trump’s policies, has been under heavy pressure this year. If the euro truly were strengthening, we’d see it in the Swiss franc as well. But we don’t. Not even close. In fact, as I said earlier: the euro has never been this weak against the franc.
Edin Mujagić is an economist, manager of the Hoofbosch Investment Fund, and author of the book “Keerpunt 1971.” He writes a monthly ECB Watch column for Investment Officer on the monetary policy of the European Central Bank.