Gabriel Makhlouf, chief of the Irish central bank and member of the ECB governing council, spoke at a conference in France. He explained that the euro is not yet positioned to replace the US dollar as the world’s reserve currency due to Europe’s incomplete economic and financial integration.

Makhlouf noted that the eurozone lacks a unified fiscal structure and does not have a safe asset akin to US Treasuries. He remarked that recent euro gains against the dollar are influenced more by concerns over U.S. governance rather than a shift in reserve currency status.

Opportunities Amid Global Uncertainties

He urged the European Union to use current global uncertainties as an opportunity to fortify its internal market. He also suggested improving collective financing and increasing strategic autonomy within the bloc.

In essence, Makhlouf is pointing out that despite periodic rises in the euro’s strength compared to the US dollar, this isn’t an indication of the euro edging closer to dethroning the dollar as the foremost reserve currency. The key issue, as he lays it out, is structural. The eurozone remains fragmented in some deeply foundational ways—most notably, there’s no unified budget system across member countries, and no shared government bond that investors can rely on in the same way they do US Treasuries. Without these, large institutions—like foreign central banks or sovereign wealth funds—have little reason to rotate out of dollar-denominated assets in any sustained way.

From our standpoint, this is an important observation. In the markets, movements in currency levels often prompt sharp positioning in various derivatives: options, short-term futures, even longer-term rate contracts. But here we’ve got a senior policymaker telling us that we shouldn’t get carried away by fleeting gains. The euro might be edging up for now, but that’s partly driven by external doubts—specifically, worries over American governance and policymaking—not internal European strength.

Strategic Positioning for the Future

It also means that current volatility in euro-related contracts may not reflect real structural change—they may instead be events-driven, spurred by noise rather than longer-term shifts in capital flows. That changes how we might structure exposure over the next few weeks. Over-leveraging on the back of euro appreciation alone ignores underlying hesitations that remain unsolved.

Makhlouf also brings out another layer—what should Europe do in the current climate. He wants policymakers to see instability elsewhere not just as a danger, but a window to make things more robust. That includes financial integration within the bloc and reshaping the way Europe’s capital resources are pooled and used. There’s also a call for greater independence in economic strategy, straying away from heavy reliance on external partners, whether in supply chains or financial systems.

From a position-taking perspective, these are not ideas that will play out in a month or two. But they shape the future currency-risk environment. If Europe does push forward with deeper fiscal coordination or steps towards common borrowing instruments, longer-dated volatility and rate products will start to reflect that. In the meantime, what we see is an FX market reacting to headline events beyond its control rather than policy fundamentals.

For now, positioning should reflect what’s observable, not speculative. Tighten exposure durations and skew risk strategies towards known catalysts in the short term. Even if the euro keeps edging higher in the days to come, look under the bonnet—it’s not demand-led strength, it’s faded confidence elsewhere.

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