The Euro stayed firm this week, even after President Donald Trump renewed trade threats against European governments over Greenland.
The pressure looked real, but the reaction stayed calm. The reason is in capital flows, not politics. Europe funds a huge share of U.S. markets.
Europe stands as the largest foreign lender to the United States. Countries across the region hold about $8 trillion in U.S. bonds and equities.
That figure almost doubles the holdings of the rest of the world. George Saravelos, global head of FX research at Deutsche Bank, laid this out in a Sunday client note. The Euro is supported by that balance of money and leverage.
European capital restrains tariff fallout
Saravelos warned that the Western alliance faces real strain. He said, “In an environment where the geoeconomic stability of the Western Alliance is being disrupted existentially, it is not clear why Europeans would be as willing to play this part.”
He added, “Developments over the last few days have potential to further encourage dollar rebalancing.” Those remarks tied market risk to funding, not tariffs. The Euro was sharply selling as investors weighed exposure on both sides of the Atlantic.
Saravelos said new U.S. tariffs over Greenland could push Europe toward tighter political coordination. That dynamic reduced the odds of lasting currency pressure this week.
He also said, “The key thing to watch over the next few days is whether the European Union activates its anti-coercion instrument.” French President Emmanuel Macron plans to request that step, according to a person close to him who spoke under anonymity due to government rules.
Saravelos said, “With the U.S. net international investment position at record negative extremes, the mutual inter-dependence of European-U.S. financial markets has never been higher.”
He added, “It is a weaponization of capital rather than trade flows that would by far be the most disruptive to markets.”
Chinese companies expanded their use of the Euro in cross-border payments last year. Settlements in the currency rose at the fastest pace since 2010.
Data from the State Administration of Foreign Exchange showed payments jumped 22.8% to 1.18 trillion yuan, or $169 billion, in 2025.
Bloomberg’s calculations matched the figures. Trade between China and the European Union reached $828.1 billion in 2025, up 5.4% from the prior year. SAFE data showed the Euro
