The euro has demonstrated unexpected strength as a safe haven currency, following President Trump’s tariff announcement. It is now the third best-performing G10 currency, trailing only the Swiss franc and Japanese yen, which traditionally act as safe havens.
Despite criticism regarding its status, the euro’s performance is supported by current account dynamics and European political developments. Forecasts for the EUR/GBP pair have been adjusted higher, now expected to reach 0.85 in six months, up from a previous estimate of 0.83.
The Euros Historical Context
Past periods of the pound acting as a safe haven exist, though they are often linked to European exposure diversification. The euro’s brief history has raised questions around its sustainability without closer fiscal ties among member countries.
What we’ve seen recently is not entirely intuitive. The euro—long debated in terms of whether it truly belongs in the same safety bracket as the yen or franc—has held up remarkably well in times of broader market distress. This most recent boost seems tethered less to its historical fundamentals and more to an environment where traders are looking for relatively stable holdings that are not directly exposed to US-China tensions. The tariff comments sent a clear shock through global markets, and the euro was quick to benefit from the resultant move away from risk.
Sceptics have often pointed to the eurozone’s institutional weaknesses—particularly the lack of common fiscal policy—as evidence that the euro shouldn’t behave like other safe haven currencies. Even now, some would argue that the currency’s strength reflects market constraint rather than deep confidence. However, when we examine net current account positions, particularly the eurozone’s sizeable surplus, the currency’s resilience begins to look far less puzzling. That surplus continues to generate passive demand for the euro, especially in uncertain periods.
The shift in six-month outlook from 0.83 to 0.85 in EUR/GBP does not arrive by accident. It reflects ongoing re-evaluations around the relative performance and direction of both economies. From our vantage point, this implies further adjustments in hedging strategies for sterling-based portfolios. Positions that assumed more weakness in the common currency are now forced to recalibrate—often at awkward moments of reduced liquidity.
The Euro Versus The Pound
We view the pound’s own historical role as a safe option with more nuance. When uncertainty hits Europe, it isn’t uncommon for sterling to absorb flows looking to diversify away from eurozone-specific exposure. But two decades of monetary union in the euro area have made investors wary of assuming correlation between continental stress and euro weakness. That linkage has thinned.
Sánchez’s recent comments on fiscal integration, however tentative, may have supported a modest perception shift around the euro’s institutional trajectory—even if the path remains years long. Younger traders may not recall, but in 2012 we faced similar conversations about the euro’s future. The fact we’re even imagining the euro as a short-term refuge points to how much has changed since then, especially in structural current account mechanics.
From a positioning perspective, options traders should expect the relative value of euro calls to remain elevated while the uncertainty persists. The shift in implied-volatility premiums supports this stance. For those managing exposure around currency pairs like EUR/GBP or EUR/USD, being underweight volatility could come back to bite.
In short, balance sheet realities—more than political rhetoric—appear to be driving the euro’s newfound performance. That may not last beyond the current trade policy cycle, but for now, it demands a rethink of assumptions, particularly on short-duration trades and margin requirements tied to euro-denominated instruments. We will stay flexible.
