Analysts at Barclays are flagging an increase in the extra return investors require to hold assets denominated in U.S. dollars, saying that this so-called "dollar risk premium" has widened and may extend further.
In a research note, strategists including Themistoklis Fiotakis and Lefteris Farmakis tied the shift in part to recent remarks from President Donald Trump that were interpreted as supportive of a weaker dollar. The Barclays team noted that the market has begun to price a broader gap between interest rate expectations in the United States and the behavior of the euro-dollar exchange rate.
The analysts highlighted that "rate gauges imply EUR/USD around the mid-teens and it is already trading" above the $1.20 mark for the first time since 2021. They tempered that observation by reminding readers that such "relationships are no laws of gravity." Within that context, Barclays suggested the euro has become the "primary anti-dollar trading instrument."
Market participants also reacted to comments from President Trump on Tuesday, when he downplayed concerns about the dollar's sharp slide this month to near four-year lows and described the currency's value as "great." Traders, many of whom were focused on an impending Federal Reserve interest rate announcement, continued to sell the dollar following that statement.
Pressure on the greenback was not limited to euro strength. The yen added to downward momentum for the dollar as it firmed on speculation of a coordinated Japanese-U.S. intervention to support the Japanese currency. For the week, the dollar was headed for its largest weekly drop since April.
Barclays' commentary centers on observable market dynamics: a notable divergence between rate expectations and exchange-rate moves, the euro's role as a preferred vehicle for selling the dollar, and concurrent flows tied to the yen. The bank's note cited those elements without asserting any deterministic link between them, acknowledging that typical relationships can change.
Context and immediate market drivers
- President Trump's public remarks were seen as supportive of a weaker dollar and coincided with continued dollar selling.
- Traders were positioning ahead of a Federal Reserve interest rate decision, which factored into recent dollar flows.
- Speculation about joint intervention to aid the yen contributed to the dollar's slide against the Japanese currency.
The Barclays analysis frames the developments as an increasing premium investors demand to assume dollar exposure, signaled by the widening gap between rate gauges and current FX levels. The note stops short of declaring a fixed causal chain, noting that historical relationships do not always hold in current markets.