If you live in Europe and hold US assets, 2025 gave you a sharp and personal reminder of how much currency markets matter. The US Dollar Index fell nearly 10 percent over the course of the year, its steepest annual decline in over a decade. Against the euro specifically, the dollar shed around 12 percent. Against the Swiss franc, it lost nearly 14 percent. If your 401(k), your IRA, your US brokerage account, or your Social Security income is denominated in dollars, that move was not a headline. It was a reduction in the purchasing power of your wealth, measured in the currency you actually spend.
Most professional forecasters expect the dollar to weaken further in 2026. Some target EUR/USD at 1.22 by year-end. Others see it reaching 1.24 or higher. A minority expect a partial recovery. None of them agree precisely, which is itself one of the most important things to understand about currency risk. It cannot be predicted reliably, and any plan that bets on a single forecast is a plan built on a fragile foundation.
This guide explains what is driving the dollar’s trajectory in 2026, how it affects the most common types of US assets held by European residents, and why managing this risk is a financial planning conversation, not a tax one. Our Financial Planning for US Expats Living in France: 2026 Guide covers the broader financial landscape for those whose lives span both sides of the Atlantic.
What Drove Dollar Weakness and the Dollar Index in 2025 and What Sustains It in 2026
Currency markets rarely move for a single reason, and the dollar’s decline has been driven by a cluster of forces that have been building for several years and show no signs of fully reversing, including persistent global inflation, divergence among central banks, and shifting monetary policy in 2026.
The Federal Reserve’s Easing Cycle
The Federal Reserve began cutting interest rates in late 2024 and continued easing through 2025 as US labor market conditions softened. Differences in interest rate expectations are a dominant factor in foreign exchange, so even as the Fed eases, persistently sticky inflation is expected to shape monetary policies and keep markets focused on each central bank’s policy rate path. Multiple major institutions, including ING and MUFG, expect the Fed to cut further in 2026 as US growth slows in the second half of the year, but higher interest rates abroad can still support other currencies by attracting capital. Lower US rates relative to European rates narrow what is called the rate differential, and a narrowing rate differential has historically correlated with a weaker dollar against the euro.
Fiscal and Structural Pressures for Foreign Investors
The US is running both a significant budget deficit and a persistent current account deficit. These twin deficits have historically been associated with dollar weakness over the medium term because they require ongoing inflows of foreign capital from foreign investors to finance, and government fiscal policy can influence exchange rates over time through its effect on growth, rates, and broader economic policy. U.S. national debt crossed $39 trillion in March 2026, and annual interest payments on U.S. sovereign debt exceeded $1 trillion in 2025. Several forecasters, including ABN AMRO and Bethmann Bank, cite these structural factors as reasons why the dollar’s weakness is not purely cyclical and may not quickly reverse even if the Fed pauses its easing cycle. At the same time, ING notes that private investor flows into US assets remain robust, which limits how far the structural pessimism should be taken. The picture is genuinely mixed.
Eurozone Tailwinds
While the dollar faces headwinds, the euro has benefited from its own tailwinds. Germany’s shift toward fiscal easing, combined with expectations of stronger eurozone economic growth in 2026 attracting investment and the ECB holding rates more steady than the Fed, has created conditions supportive of euro strength. ING targets EUR/USD at 1.22 by year-end 2026. MUFG is more bullish at 1.24. J.P. Morgan, by contrast, is more cautious, targeting a range of 1.13 to 1.15 through the remainder of 2026, citing relative growth divergence and hawkish Fed repricing as supports for the dollar.
| The range of credible professional forecasts for EUR/USD by year-end 2026 spans from roughly 1.13 to 1.25, depending on which major institution you consult. A gap that wide is not an oversight. It reflects genuine uncertainty, with varying economic conditions creating greater differentiation among major currencies. Any financial plan built around a single point estimate for the exchange rate is carrying more risk than it appears. |
Where the Dollar, Euro, and Pound Actually Stand
For context, here is a snapshot of key exchange rates and how the major institutions see them moving through the rest of 2026. These figures are illustrative and will have moved by the time you read this.
| Currency Pair | Approx. Mid-2026 Level | Range of Forecasts by Year-End 2026 |
| EUR/USD | ~1.14-1.17 | 1.13 (J.P. Morgan) to 1.25 (MUFG) |
| GBP/USD | ~1.34 | 1.28-1.31 (J.P. Morgan) to broadly flat (others) |
| EUR/GBP | ~0.88-0.89 | Rising toward 0.90 (MUFG); modest range (J.P. Morgan) |
| USD Index (DXY) | Flat in 2026 after -9.4% in 2025 | Further 5% decline expected by MUFG; J.P. Morgan dollar-positive |
Figures based on published institutional research as of mid-2026 from J.P. Morgan, ING, MUFG, ABN AMRO, and Bethmann Bank. Forecasts reflect those institutions’ views at time of publication, not a recommendation by Harrison Brook USA. Exchange rates will have moved by the time you read this. The U.S. Dollar Index fell from above 109 in January 2025 to around 100 by March 2026.
Sterling: The Underperformer Among European Currencies
The British pound has had a different story from the euro in 2025 and 2026. While the euro strengthened meaningfully against the dollar, analysts expect sterling to remain relatively weak versus the euro through late 2026, and sterling underperformed relative to other European G10 currencies. EUR/GBP has trended higher, meaning the pound has weakened against the euro even as both currencies have generally strengthened against the dollar. MUFG forecasts EUR/GBP approaching 0.90 by year-end 2026, levels not seen since the aftermath of the Liz Truss mini-budget in late 2022. The Bank of England’s ongoing easing cycle, with more rate cuts expected in 2026, is a central driver. For UK residents holding dollar-denominated US assets, the currency story is therefore doubly layered: a weaker dollar converts less favorably into sterling, and sterling itself is under pressure against the euro.
How Dollar Weakness Hits European Residents with US Assets
Currency risk is not abstract when you can see it in your account statements. Fluctuating exchange rates can add volatility to equity investments, and this kind of market volatility in financial markets requires active management, so staying informed matters. Here is how the dollar’s trajectory plays out across the most common types of US assets held by Europeans.
US Retirement Accounts: 401(k)s and IRAs
If your 401(k) or IRA is invested in US equities, the underlying portfolio may have performed well in dollar terms through 2025 and into 2026. But when you measure that performance in euros or pounds, the picture looks different. A 401(k) that grew 12 percent in dollar terms in 2025 delivered a gain of roughly zero percent in euro terms, because the dollar lost approximately 12 percent against the euro over the same period. The investment returns and the currency loss roughly cancelled each other out for a euro-based saver.
This is not a reason to avoid US retirement accounts. They remain the foundation of most Americans’ retirement planning, and the France-US Tax Treaty provides specific protections for how these accounts are treated in France. But it is a reason to think carefully about how your drawdown strategy interacts with the currency environment at the time you actually begin withdrawing, since you will be converting dollars into the currency you spend. A financial advisor can help you think through the timing and sequencing of withdrawals in a way that accounts for this dynamic.
US Brokerage Accounts and Investment Portfolios
For European residents holding US equities in a taxable brokerage account, the currency effect cuts both ways. In years of dollar weakness, strong US equity returns are partially eroded when converted to euros or pounds. In years of dollar strength, the currency conversion amplifies returns. The net long-run effect depends on the correlation between US equity performance and the dollar, which has shifted over time and is not reliably predictable.
A weaker dollar can also pull more inflows toward emerging market assets, including EM currencies as part of a broader global asset class mix. Historically, investment grade bonds still help stabilize a portfolio, while emerging market local currency bonds and stocks have often benefited when the dollar weakened, with emerging market stocks at times outperforming developed markets.
What matters most for a European resident is the currency of their spending. If your daily expenses, your mortgage, your children’s school fees, and your eventual retirement income needs are all denominated in euros or pounds, then a large unhedged dollar-denominated investment portfolio represents a structural mismatch between the currency of your wealth and the currency of your life. That mismatch is manageable, but it needs to be managed deliberately, not left to chance.
Social Security and Dollar-Denominated Income Streams
US Social Security is paid in dollars. For a retired American living in France or the UK, the purchasing power of that income stream fluctuates with the exchange rate every single month. Persistent inflation pressures currencies by reducing the real purchasing power of dollar-denominated income, especially during periods of rising inflation. A Social Security payment that was worth EUR 1,800 when the exchange rate was 1.05 is worth EUR 2,100 when the rate moves to 1.23, even if the dollar amount of the benefit has not changed. This effect works in both directions, and over a twenty or thirty year retirement it can produce significant variation in real purchasing power that has nothing to do with investment performance.
Property and Real Estate in the US
For European residents who own real estate in the United States, whether a family home, a rental property, or a second property, currency risk applies both to the value of the asset itself when measured in local currency and to any rental income it generates. A property worth $500,000 was worth approximately EUR 470,000 when EUR/USD was 1.06 in early 2025. At a rate of 1.17, the same property is worth EUR 427,000, a difference of around EUR 43,000 in local-currency value with no change in the underlying property price. This does not mean selling is the right answer. It means the currency dimension of property ownership is a real and often underestimated part of the total return picture.
The Two Mistakes European Residents Make Most Often
Years of working with cross-border clients has shown us the same patterns recurring. Neither mistake requires negligence. Geopolitical risks can have a significant impact on currency markets, and shocks that move energy prices or disrupt global trade can shift values quickly, so they need careful management rather than an emotional reaction. Both are the predictable result of approaching a complex, two-currency financial life without a coordinated strategy.
Treating Dollar Weakness as a Problem to Solve Now
When currency headlines turn negative on the dollar, it is tempting to react immediately, converting large sums into euros or pounds to lock in the current rate before it moves further. This is a form of market timing, and it carries the same risks as market timing in equities. The euro strengthened from around 1.03 to 1.17 against the dollar through 2025. But J.P. Morgan’s current forecast has it falling back toward 1.13 to 1.15 by year-end 2026 as dollar-positive factors reassert. Making a large conversion at 1.17 and watching the rate reverse to 1.13 is the currency equivalent of buying an equity at its peak.
This does not mean ignoring the risk. It means the response to currency movements should come from a plan, not from a headline. A financial advisor can help you establish a framework for when and how to manage large currency exposures based on your specific time horizon and purpose for the funds, rather than reacting to the most recent rate move.
Treating Dollar Strength as a Reason to Do Nothing
The mirror image mistake is assuming that because the dollar has periodically recovered in 2026, the currency risk has gone away or is not worth addressing. The dollar’s weakness in 2025 was the largest since 2017. The structural pressures behind that US dollar weakness, including fiscal deficits, rate differentials, slowing US growth, and diverging monetary policies that continue to leave the U.S. dollar vulnerable, have not resolved. Waiting for a more convenient moment to address currency exposure is a familiar form of financial inaction that tends to become more expensive the longer it persists.
Why This Is a Financial Planning Conversation, Not a Tax One
It is worth being direct about something that often causes confusion for cross-border clients: managing currency risk is a financial planning and investment question, not a tax question. A tax professional can advise on how a currency gain or loss is reported on your return and whether any reporting obligations apply to foreign accounts or assets. That is genuinely valuable and you should have a qualified tax professional familiar with your cross-border situation.
But the decision about how much dollar exposure to carry, how to think about the currency of your spending relative to the currency of your assets, whether any hedging makes sense for your specific situation and time horizon, and how to sequence withdrawals or transfers in a way that accounts for the exchange rate environment, these are financial planning decisions. They require someone who can look at your full financial picture across both currencies and both countries, not just at a single transaction or a single year’s return.
Harrison Brook USA works specifically with people who have financial lives that span the US and Europe. Currency risk management is a central part of that work, alongside retirement account structuring, investment allocation, and coordinated cross-border financial planning. We are not a tax preparation firm. What we focus on is the investment and financial planning layer that sits alongside your tax compliance. Our US Citizens in France service page explains how we work with cross-border clients in practice.
A Framework for Thinking About Your Own Exposure
The specific strategy that is right for your situation depends on details that a general article cannot assess. But the questions a proper currency review addresses are consistent, and understanding them helps you know what to bring to that first conversation with an advisor. Geopolitical events can quickly change how currency risk is perceived, so regular updates help you stay ahead rather than treating the review as a one-time exercise.
What Currency Do You Actually Spend In?
This is the foundational question. If your daily life, your housing costs, your healthcare, and your eventual retirement income needs are all in euros or pounds, that is your functional currency. The further your asset base is from that functional currency, the more genuine currency risk you are carrying. The size of the mismatch, and whether it is intentional or has simply accumulated over time, is the starting point for any currency risk review.
What Is the Time Horizon for Each Asset?
A 401(k) you plan to draw from over the next thirty years has a very different currency risk profile from a US brokerage account you plan to use to fund a property purchase in France within the next two years. Near-term needs are more exposed to short-term exchange rate volatility. Long-term assets have more time for currency movements to average out, though that averaging effect is not guaranteed and should not be relied upon as a plan in itself.
How Much of the Exposure Is Truly Unmanaged?
Some currency exposure is deliberate and appropriate. If you have dollar-denominated assets and dollar-denominated future obligations, they offset each other. The risk lies in the gap between your dollar assets and your non-dollar spending needs. Quantifying that gap clearly, across all your accounts and income streams, is a step many cross-border investors have never taken formally, and it tends to produce surprises when it is finally done.
Is Any of the Exposure Time-Sensitive?
A planned property purchase, an approaching retirement, or a large transfer planned for a specific date all create concentrated currency timing risk that a long-term portfolio approach does not address on its own. These situations warrant specific planning rather than a general set-and-forget approach, and they are exactly the kind of concrete, time-bounded problems where working with an advisor pays for itself most directly.
FAQs – Currency Risk in 2026
The dollar fell a lot in 2025. Does that mean my US assets are worth less?
In local currency terms, yes, if you measure your US assets in euros or pounds, a weaker dollar means each dollar converts to fewer euros or pounds than before. Whether your total return was negative depends on how your underlying US investments performed in dollar terms during the same period. In 2025, strong US equity performance partially offset the currency drag for many investors, though the magnitude varied considerably depending on portfolio composition.
Should I move my US assets into euros or pounds now while the dollar is weak?
This is the kind of decision that needs to be made in the context of your full financial picture, your time horizon for those assets, and your actual spending needs, not as a reaction to the current exchange rate. Attempting to time currency conversions based on whether the dollar seems high or low has a poor track record even for professional traders, as the wide range of current professional forecasts for EUR/USD illustrates clearly. Bring this question to a financial advisor rather than making a large reactive conversion independently.
Is currency risk the same as investment risk?
They overlap but are distinct. Investment risk refers to how the value of your assets changes in their local currency. Currency risk is a separate layer that affects what those assets are worth when measured in a different currency. Both can work in your favor or against you, and they do not always move in the same direction. A portfolio that manages investment risk well but ignores currency risk is only addressing part of the picture for a European resident with US assets.
My Social Security is paid in dollars. Is there anything I can do about the currency risk?
Social Security cannot be paid in a foreign currency, so the exchange rate risk on that income stream is structural rather than something you can eliminate. What can be managed is how that income fits into your overall retirement income picture, how much of your spending it covers relative to your total currency exposure, and how it interacts with your other assets and income sources. A financial advisor can help you think through these interconnections rather than treating Social Security as an isolated line item.
Does Harrison Brook USA help with currency transactions or conversion services?
Our focus is financial planning and investment advisory services, specifically how your overall financial picture across the US and Europe is structured and managed. We do not provide foreign exchange dealing or conversion services. For the mechanics of actual currency conversions, a specialist foreign exchange service or your bank’s international transfer desk is the right contact. What we focus on is the planning layer: how much exposure you should be carrying and how it fits into your broader strategy.
Is this a tax issue?
Currency gains and losses can have tax reporting implications, which is a question for a qualified tax professional familiar with your specific cross-border situation. The question of how to manage your currency exposure in the first place, how to structure your assets, how to time transfers, and how to think about the currency of your spending relative to the currency of your wealth, is a financial planning question. The two often need to be coordinated, but they are different conversations with different professionals.
| Living in Europe with US Assets? The Currency Question Needs an Answer. A weaker dollar is not just a headline. It affects the real value of yourretirement accounts, your investment portfolio, and your income streamsin ways that compound quietly over time. Harrison Brook USA works with cross-border clients who need a coordinatedstrategy, not a reaction to the latest exchange rate move. Speak with a cross-border financial advisor today. |
Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or legal advice. Exchange rate figures, forecasts, and analyst views referenced are based on publicly available institutional research as of mid-2026 and are illustrative only. Currency forecasts do not represent recommendations by Harrison Brook USA. Exchange rates are volatile and will have changed by the time you read this. The value of investments and currency holdings can go down as well as up. Harrison Brook USA is a financial planning and investment advisory firm and does not provide tax preparation, tax advisory, or foreign exchange dealing services. Please consult a qualified financial advisor for investment and planning guidance and a qualified tax professional for tax reporting questions related to currency transactions or foreign assets.
