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Euro poised to gain as dollar loses safe-haven appeal, ECB's Lane says
Philip Lane, the European Central Bank's chief economist, stated on Friday that the euro is well-positioned to capture a larger share of investor portfolios amid growing doubts about the dollar's effectiveness as a global safe-haven asset. Speaking at the Danish Economic Society conference in Kolding, Lane argued that a US economy increasingly focused on domestic markets would erode the dollar's traditional appeal during times of uncertainty. This shift could prompt both European and global investors to trim dollar holdings in favor of the euro, which he described as the international currency best placed after the dollar. While acknowledging the dollar's enduring dominance as the primary reserve currency, Lane suggested room for a less unipolar international monetary system.
Lane's comments came as the EUR/USD exchange rate hovered near 1.1650, with the euro up about 13% against the dollar over the past year. He noted that in the second quarter of 2025, the euro appreciated 9% against the dollar, moving from 1.08 to 1.18, largely due to shifting risk sentiment that reflected waning confidence in the dollar and improving perceptions of the euro, per ECB models. Currency movements aligned with market caution ahead of the December US nonfarm payrolls report, expected to show 60,000 jobs added. Recent US labor data showed resilience, with initial jobless claims at 208,000 for the week ending January 3, slightly below the anticipated 210,000.
The euro ranks as the second-most important international currency across multiple metrics, according to Lane's presentation. International Monetary Fund data indicate that euro-denominated reserves made up about 20% of global foreign exchange reserves at the end of 2024. The dollar held its leading position with 46% to 57% of reserves depending on the measurement method, though down from 71% in 1999.
For European investors, a diminished safe-haven role for the dollar could foster greater "home bias" toward the euro in financial portfolios, either through reduced dollar asset allocations or increased hedging of dollar positions. Global investors outside Europe might opt for slightly lower dollar exposures and correspondingly higher euro holdings. Lane highlighted necessary reforms to bolster the euro's expanded role, including completing the banking union, advancing toward a capital markets union, and issuing more euro-denominated safe assets to meet rising demand. He pointed out that the current stock of such assets remains too limited to provide the liquidity and risk-management services that define true safe-haven currencies.
