The Euro demonstrated resilience this week, maintaining its strength even as President Donald Trump reiterated trade threats directed at European governments concerning Greenland. Despite the apparent pressure, the market reaction remained calm, largely attributed to capital flows rather than immediate political implications.
Europe plays a significant role in funding U.S. markets, acting as the largest foreign lender to the United States. Countries across the European region collectively hold approximately $8 trillion in U.S. bonds and equities. This substantial figure nearly doubles the holdings of the rest of the world combined.
George Saravelos, global head of FX research at Deutsche Bank, highlighted this dynamic in a client note, explaining that the Euro's support is underpinned by this balance of money and leverage. The intricate financial interdependence between Europe and the U.S. has reached unprecedented levels.
European Capital Cushions Tariff Fallout
Saravelos cautioned that the Western alliance is experiencing genuine strain. He posited that in an environment where the geoeconomic stability of the Western Alliance is facing existential disruption, it is uncertain whether Europeans would remain as amenable to certain roles or actions. Developments over the past few days have the potential to further encourage dollar rebalancing, tying market risk to funding rather than solely to tariffs.
The Euro experienced a sharp sell-off as investors assessed their exposure on both sides of the Atlantic. Saravelos suggested that new U.S. tariffs related to Greenland could potentially propel Europe towards enhanced political coordination. This evolving dynamic has consequently reduced the likelihood of lasting currency pressure this week.
He also noted that a key indicator to monitor in the coming days is whether the European Union decides to activate its anti-coercion instrument. French President Emmanuel Macron intends to request such a measure, according to an individual close to him who spoke on condition of anonymity due to government regulations.
Saravelos emphasized that with the U.S. net international investment position at historically negative extremes, the mutual inter-dependence of European-U.S. financial markets has never been greater. He concluded that the "weaponization of capital rather than trade flows" would be the most disruptive factor for markets.
Growing Euro Usage in Cross-Border Payments
In parallel developments, Chinese companies significantly increased their use of the Euro in cross-border payments last year. Settlements denominated in the Euro saw their fastest pace of growth since 2010.
Data released by the State Administration of Foreign Exchange indicated that these payments surged by 22.8% to reach 1.18 trillion yuan, equivalent to $169 billion, in 2025. Bloomberg's calculations corroborated these figures.
Trade volume between China and the European Union reached $828.1 billion in 2025, representing a 5.4% increase from the previous year. State Administration of Foreign Exchange data also revealed the Euro's growing prominence.