The US currency has been falling against the euro for a year, and has now dropped to around $1.20 for €1. That shift can look alarming on a chart, yet for many households and companies in Europe, the move is quietly easing costs rather than triggering a crisis.
What 1.20 dollars to the euro really means
Exchange rates look abstract, but they decide how much you pay for oil, gas, iPhones and US tech stocks. A year ago, the dollar came close to parity with the euro, at roughly $0.98 for €1. Since then, it has lost more than 15% against the single currency.
Every euro now buys significantly more dollars than it did at the start of 2025, making dollar‑priced goods cheaper for Europeans.
This shift is happening against a backdrop of political tension in Washington. The White House has pushed for lower interest rates to support growth, while the Federal Reserve has been more cautious. Markets expect further rate cuts in the US, and that expectation is weighing on the dollar.
Currency markets are never driven by a single factor. Interest rates, inflation, growth prospects and political risk all interact. Right now, investors see the eurozone as relatively stable, while US policy looks less predictable. That makes the euro slightly more attractive, at least on a relative basis.
Cheaper energy imports: an invisible pay rise
Most of the world’s energy trade is priced in dollars. When the dollar weakens and you get more of them for each euro, those barrels of oil and shipments of liquefied natural gas cost less in local currency terms.
A softer dollar acts like a discount on Europe’s energy bill, easing pressure on both households and manufacturers.
For a country that imports much of its energy, this matters. Lower dollar prices can:
- Reduce fuel and heating costs
- Cut transport and logistics expenses
- Lower production costs for energy‑intensive industries
- Take some pressure off inflation figures
When factories pay less for energy, the effect runs through supply chains. Food processing, chemicals, metals and construction materials all benefit. That doesn’t automatically translate into lower prices on supermarket shelves, but it can slow price rises and protect margins for struggling firms.
Imports from China and the US get a discount too
It’s not just energy. A large share of global trade, including many shipments from China, is invoiced in dollars, even if neither side uses the US currency at home.
For European importers, that brings another tailwind. Electronics, clothing, machinery and countless intermediate goods become cheaper when converted back into euros. Chinese products may gain a slight price edge, but for European manufacturers that rely on Chinese parts, the weaker dollar trims costs.
American exports into Europe also feel the effect. Laptops, software subscriptions, cloud services and industrial equipment from US companies all appear less expensive on a euro basis.
From smartphones to software licences, many everyday products priced in dollars are quietly falling in cost for euro users.
Who loses from a weaker dollar?
The picture flips when you look at European exporters selling into the US. Their costs are in euros, their revenues arrive in dollars. When those dollars are worth less, each sale abroad brings home fewer euros.
| Sector | Effect of weaker dollar | Typical response |
|---|---|---|
| Aerospace | US orders pay in cheaper dollars | Heavy use of hedging, long‑term contracts |
| Luxury goods | Lower euro revenue per US sale | Price adjustments, brand strength cushions impact |
| Agri‑food | Exports like wine and cheese become pricier in the US | Harder to adapt, fierce competition from local producers |
Aerospace and luxury: better prepared for turbulence
Large aerospace groups and luxury brands are not helpless. They routinely use currency hedging, essentially buying financial “insurance” to smooth violent swings.
In luxury, price is rarely the main reason people buy. High‑end handbags, watches or couture can be repriced in dollars to offset part of the exchange‑rate hit. A wealthy American buying a European brand is paying for the logo and the story as much as the product itself.
Aerospace is different. Aircraft are usually priced in dollars, and contracts stretch over years. Currency hedging, careful sourcing and global supply chains help the big players reduce the shock, though not eliminate it.
Food exports feel the pinch
The agri‑food sector has far less room to manoeuvre. A bottle of French wine or Italian olive oil competes directly with Californian, Chilean or Argentine alternatives on US shelves.
When the dollar drops, European wines and speciality foods suddenly look more expensive next to local and Latin American rivals.
American consumers weighing up a French Bordeaux against a domestic label may be tempted to trade down. Tariffs and shipping costs add another layer of pressure. For small and medium‑sized producers, that can mean thinner margins or lost sales.
What a weaker dollar means for your investments
For euro‑based investors holding US shares, the story is mixed. If Wall Street rallies strongly, gains can offset the currency drag. That’s what happened recently: while the dollar slid about 15% over 2025, the tech‑heavy Nasdaq index rose around 22% in dollar terms.
Even with a falling dollar, strong US stock performance left euro investors in broad tech funds with a positive overall return.
Those who own US stocks through a simple brokerage account feel the currency impact directly once they sell and convert back to euros. Investors using tax‑advantaged wrappers focused on European assets are less affected, except where they hold specific dollar‑denominated funds.
Timing matters. Selling US assets when the dollar is weak locks in a poorer exchange rate. Waiting for signs that the Federal Reserve might change course on interest rates can be one way to reduce that risk, though there are no guarantees that the currency will rebound on cue.
Should euro investors avoid US markets?
Walking away from US equities just because the dollar is softer can be short‑sighted. Historically, American stock markets have often outperformed European indices over long periods, driven by big tech and higher growth firms.
For many savers, a balanced approach works better than trying to predict currency turns. That might mean:
- Keeing a mix of euro and dollar assets
- Using broad ETFs rather than single high‑risk names
- Accepting that currencies will move both for and against you over time
Why the dollar is sliding – and what could change it
The current move reflects expectations that US interest rates will keep drifting lower, narrowing the gap with eurozone rates. When US assets offer less of a yield premium, the incentive to hold dollars weakens.
Political noise also plays a role. Public clashes between the White House and the Federal Reserve about how fast to cut rates unsettle investors. Markets tend to prefer central banks that act independently of governments.
Several scenarios could shift the trend:
- If US inflation flares up again, the Fed might delay or reverse cuts, lifting the dollar.
- A recession scare in Europe could weaken the euro and restore some shine to the dollar.
- Geopolitical shocks often trigger a “flight to safety” into dollars, at least temporarily.
None of this is predetermined. Currency markets can overshoot and then snap back quickly, catching businesses and households off guard.
Key terms and practical angles for households
Three concepts worth knowing
- Exchange rate: The price of one currency in terms of another, such as $1.20 for €1.
- Depreciation: When a currency loses value against another, like the dollar falling from $0.98 to $1.20 per euro.
- Hedging: Financial strategies used by companies and investors to reduce the impact of currency swings on profits or portfolios.
Everyday examples you might feel
For a European family planning a trip to New York, the weaker dollar is a clear win. Hotel rooms, meals and shopping in the US effectively go on sale when converted back into euros. On a £3,000 or €3,000 holiday budget, the difference vs a period of dollar strength can run into hundreds of units of local currency.
For small export businesses, the picture is more delicate. A craft brewery selling into the US might see its product move from “interesting import” to “too pricey” as the exchange rate shifts. Some will respond by trimming margins, others by targeting higher‑end niches where buyers care less about price.
The same currency move that cuts your online subscription bill from a US platform can squeeze a family‑run cheesemaker selling to a New York deli. That tension lies at the heart of every big currency swing: some gain breathing space, others are forced to adapt quickly.
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