Can the Euro Really Challenge the Dollar’s Grip on Global Markets?

European Central Bank (ECB) President Christine Lagarde’s declaration of Europe’s “global euro” moment in the Financial Times on 17 June marked an ambitious pitch for the euro’s future as a global reserve currency. 

The dollar’s dominance may have shown cracks as persistent inflation, policy instability, and the weaponisation of the dollar through sanctions have prompted some countries to explore alternatives. But de-dollarisation is a slow burn. The greenback has continued to benefit from deep financial markets, its convenience yield, and its status as the world’s safe haven. For the euro to capitalise on these cracks, Europe must first address its own shortcomings.

The strengths

The ECB’s ambition is built on three foundations: geopolitical, economic, and legal.

• Geopolitically, Europe has accelerated trade agreements with Canada, ASEAN, and Mercosur to embed the euro in global commerce. NATO expansion, military union initiatives, and commodity security agreements aim to make Europe a trusted geopolitical player – a key requirement for reserve currency status
• Economically, the EU is pushing for greater integration via the Capital Markets Union and aiming to channel up to €10 trillion in bank deposits into much-needed strategic investments
• Legally, Europe’s institutional independence and robust decision-making processes provide stability and adherence to the rule of law, even if slow

The weaknesses

But the region’s weaknesses remain stark. The lack of a fiscal union, common safe asset, and unified banking framework limit its ability to rival the dollar. The bloc’s traditional economic engines, Germany, France and Italy are grappling with stagnation, ageing population and debt burdens. Political fragmentation and rising nationalism across member states further complicate integration. Meanwhile, Europe’s geopolitical vulnerabilities, from the Baltics to the Balkans, expose cracks in its security setup. 

From a capital market’s perspective, liquidity in euro-denominated markets is a major hurdle. Capital markets have remained fragmented along national lines, with limited pan-European activity. For example, for major Western European equity indices such as the CAC 40 or DAX 40, 56-68% of trading still takes place on domestic exchanges, while just 3% or less occurs on other exchanges, according to an ECB report. This fracturing has stifled liquidity, especially at smaller exchanges, and reduces the attractiveness of EU markets for issuers and investors. Figure 1 shows how average daily trading volumes for large-cap and mid-cap stocks in the EU lag significantly behind the US. 

Figure 1.  Euro area lags US securities market depth and liquidity

Source: European Central Bank report published 11 March 2025,  based on data from Euronext, Oliver Wyman, Fedwire Securities Service Statistics.
Notes: The average daily trading volume per company for large and mid-caps allows for a comparison between market segments for the average individual firm, thus accounting for the overall higher depth of US markets and the larger average size of US firm market capitalisations (Euronext (2024), “Demystifying the liquidity gap between European and US equities”, April). The monthly turnover velocity is another measure of the liquidity of securities, adjusting for the market capitalisation of a given market or security (Oliver Wyman (2024), “The Capital Flywheel: European Capital Markets Report”, May). The total value of securities issued in CSDs provides an indication of the overall size of capital markets.

This fragmentation has extended to post-trading infrastructure. Cross-border central securities depositories (CSD) settlement accounted for just 4% of total transactions in 2024, creating friction and inefficiencies across borders. The ECB’s commitment to distributed ledger technology for settlement systems is a step forward, but integration remains limited by regulatory fragmentation and divergent national supervisory approaches. 

Commodities pricing

Commodities pose yet another obstacle. Without significant market share in domestic production, including renewables and recycling, we believe the euro is unlikely to emerge as a strong commodity pricing benchmark. Some expedited trade agreements with resource-rich nations like Canada, Mexico, Chile, and Indonesia aim to embed the euro in trade flows. While promising, these agreements stop short of challenging the dollar’s dominance in global commodity markets.

Lessons from history underline these risks. The euro’s ambitions before the 2010-2012 eurozone crisis were backed by stronger economic growth and less political fracturing. But the crisis exposed critical weaknesses – from fiscal problems to fragmented capital markets – that remain unresolved. Today, the euro’s bid faces even steeper challenges, with global competition from China and the US intensifying

Europe may be making progress, but time is not on its side. The geopolitical environment is volatile, economic growth is scarce, and political leadership lacks public approval. Even Bulgaria’s likely accession to the eurozone – a generally positive signal – comes with risks, given its issues with corruption and rule of law.

Lagarde's push for a “global euro” is ambitious, though current data shows investors are likely to favour gold over prospects of an expanded international euro role.

Authors: Radoslav Valkov, Associate Quantitative Researcher, Man Numeric and Diana Zheng, Senior Quantitative Researcher, Man Numeric.

Strong jobs report supports Fed on hold for now

In my view, last week’s US jobs report effectively closed the door on a July rate cut. There had been some faint hopes that if the numbers were weak enough, the Federal Reserve (Fed) may cave.

The report showed 147,000 payrolls created in June, which was well above the Bloomberg consensus estimate of 106,000.  The unemployment rate fell to 4.1% from 4.2% in May. Job creation in the previous two months was upwardly revised by a net 16,000.

While the headlines seems positive, there are some areas of real weakness in the report. First of all, only 74,000 of the 147,000 payroll gains came from the private sector. Half of jobs created in June – 73,000 – were government jobs (more specifically, state and local jobs as the federal government continues to cut jobs). And of the private sector jobs, the healthcare sector was responsible for 39,000 jobs created. Job gains came from hospitals (16,000) and nursing and residential facilities (14,000). This is important to keep in mind given projections that the new budget legislation (OBBBA) will place enormous fiscal pressure on rural hospitals and nursing homes.

It is important to note that in the June press conference, Fed Chair Jerome Powell reiterated that a wide set of indicators suggests the labour market is in balance. He again pointed out that job creation is low, but so are layoffs. But if we see a pick-up in layoffs, that could be problematic since job creation is low; it would likely be reflected in an increase in long-term unemployed. Therefore, we will want to follow this metric closely.

In the June dot plot, the Fed only nudged up unemployment expectations very modestly for 2025. That seems appropriate as of now, but I wouldn’t be surprised to see a meaningful deterioration in the labour market as the year progresses.

Average hourly earnings growth fell to a very tame 0.2% in the month and 3.7% in the year. This is good news as the most powerful driver of sustained higher inflation is usually high labour costs, and that is certainly not what we are seeing right now.

Author: Kristina Hooper, Chief Market Strategist, Man Group. Read Kristina's full new weekly commentary Signals & Sentiment here.

All data sourced from Bloomberg unless otherwise stated.