The currency fluctuations between the Euro and the US dollar in 2025 prove to be a compelling case study. When a new, more powerful narrative takes hold, it can override fundamental economic realities. The value of a currency, it seems, is less a reflection of its balance sheet and more a mirror of the world’s collective confidence and anxiety.

At the beginning of 2025, many financial pundits seemed to believe that the Euro was a currency in decline. They were fixated on Europe’s stagnant economic growth and fiscal challenges, and predicting a fall to parity with the US dollar. This narrative was clear and seemingly unshakable.

It was also a narrative that’s easy for me to accept. I had experienced first-hand the Euro’s long-term devaluation, moving to Ireland in late 2008, where the EUR/SGD exchange rate was $1.934. It was a satisfying time, with my salary almost doubling when translated to my home currency (albeit at the much higher tax rate that would have most Singaporeans reeling). Yet, almost 2 decades later, that rate has plummeted to $1.41, a decline of approximately 27.1% at the beginning of 2025.

But then came a profound shift. The US government’s April 2nd “reciprocal tariffs” sent shockwaves through both the stock and bond markets, followed by unprecedented public pressure on the Federal Reserve. The prevailing narrative of American stability was rapidly replaced by a new, chaotic one - one that felt mercantilist, transactional, and fraught with uncertainty.

The US dollar, long seen as the world’s ultimate safe haven, suddenly felt much less so.

This resulted in a fascinating paradox. The Euro, despite its lingering economic issues, began to strengthen against the USD (and SGD), rising from its lows since the start of the year. Its resurgence was not due to any fundamental improvement in Europe’s economy, but rather because a new, more dramatic story had emerged: that the USD was becoming an unreliable currency to hold.

This is a clear lesson I’m filing away for the future. In financial markets, our perceptions can carry more weight than reality itself. The value of an asset isn’t just what it’s worth; it’s what people collectively believe it’s worth at a given moment. And when a powerful new story takes hold, that belief can change faster than you’d ever expect.