No. 1064 - The role of tail-risk repricing in the USD/EUR exchange rate
The paper analyses the US dollar exchange rate against the euro, with a particular focus on the period since the beginning of 2025. The aim is to assess how interest rates in the two economies and investors' perceptions of the risk of large exchange rate movements affect the exchange rate and the role of the US dollar as a safe-haven currency.
The movements in the US dollar exchange rate against the euro since the beginning of 2025 have been associated primarily with changes in investors' perceptions of the risk of large swings in the value of the currency, while the role of interest rate differentials in driving exchange-rate movements has gradually declined. Following the US administration's tariffs announcement on 2 April 2025, the dollar also displayed weaker traditional safe-haven and hedging properties. The conflict in the Middle East has partly reversed these dynamics.
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08 October 2026
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