Trump’s policy pushes the euro towards parity with the US dollar

Economists expect the euro to fall to parity with the U.S. dollar, or even below, next year. This would mean that the currencies had a 1:1 exchange rate.

The euro is used by 20 of the 27 countries of the European Union: Austria, Belgium, Croatia, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain. .

The most recent currency reach parity with the dollar in 2022for the first time in two decades, before rebounding.

Today, the euro is “back in the news,” James Reilly, senior markets economist at Capital Economics, wrote in a Nov. 11 research note.

“The euro has suffered more than others following Trump’s victory and we doubt it will stop any time soon,” he wrote.

From 10:00 a.m. ET on Friday morning, 1 euro equaled about $1.06. That’s down about 3% from about $1.09 at the market close on Election Day.

The ICE US Dollar Index (DXY) was also recently on a winning streak, Reilly told CNBC. Last week marked the index’s eighth straight week of gains, an “extreme run” that has only happened three times since 2000, Reilly said.

Travelers can try to take advantage of this monetary dynamic by postponing a purchase until next year. For example, a European hotel or trip that allows you to book now for 2025 but pay later allows you to defer the expense – knowing of course that this does not guarantee that the euro will continue to weaken against the dollar .

Tariffs and trade policy are major factors influencing Euro-USD monetary dynamics, according to economists.

Trump has imposed sweeping tariffs on his global trading partners.

During the electoral campaign, he proposed rates of 10% or 20% on all imports, which would include those from the European Union. He I swore on Monday to impose additional customs duties of 10% on China and 25% on all products from Canada and Mexico, from his first day in office, thus signaling his desire to implement taxes on import.

The ultimate scope and scale of the tariff policy, however, is unclear.

Tariffs on Europe could reduce demand for its exports, leading to a weakening of the European economy and a loss of value of the euro, economists say.

Interest rate differentials also have a big influence on relative currency movements, economists say. They expect the interest rate gap between the United States and the euro zone to widen, in part because of the impact of tariffs.

The tariffs should “be inflationary for the United States,” Reilly said. These import taxes are paid by U.S. companies, who generally pass on their higher costs to consumers.

US Federal Reserve officials could keep interest rates higher for longer bring back inflation to their long-term goal. Meanwhile, economists expect the European Central Bank continue to reduce rates.

Tariffs on the eurozone would likely cause the ECB to cut rates further, in a bid to support the European economy, creating a widening rate gap that would favor the dollar “quite dramatically,” Wells’ McKenna said Fargo.

There are other factors as well.

On the one hand, the U.S. economy has held up “much better than anyone expected” over the past two years, in stark contrast to Europe, Reilly said.

Plus, financial markets don’t like uncertainty, McKenna said.

If question marks around Trump administration policies disrupt markets in the near term, investors will likely seek safe-haven assets denominated in U.S. dollars, such as U.S. Treasuries, thereby strengthening the dollar, McKenna said .

Of course, there is a risk that Europe will retaliate with tariffs of its own or somehow penalize Americans by raising some consumer prices, like airfares, Reilly said.

“We don’t think that’s going to happen,” he said. “We believe that Europe wants as much free trade as possible.”