It’s not just Trump: Economic malaise and political chaos are battering Europe’s currency too
The European Central Bank, meanwhile, reminded markets last week that the combination of low growth and high budget deficits could revive fears of national bankruptcies across the eurozone.
‘Parity is the next milestone’
The single currency fell as low as $1.033 against the dollar on Friday, after dismal economic data sparked expectations that the European Central Bank will have to accelerate interest rate cuts. Those forecasts had markets pricing a 50 percent chance of a 0.5 percentage point cut in December; while the euro has recovered a little since then, analysts say it may be heading back toward parity with the greenback, anticipating fresh blows from Trump’s expected tariffs.
“Absent a growth turnaround in Europe, parity is the next milestone,” said Oxford Economics senior economist Daniel Kral. As things stand, said ING’s head of FX strategy Chris Turner, it could get “very close to parity before year-end.”
This would be only the third time since the single currency was launched that it buys no more than a dollar. The first moment came in the early 2000s, when the euro was still establishing its international credibility. The second was in 2022, when Europe suffered an energy price surge attendant on the war in Ukraine.
To be sure, the Trump factor is powerful: Since his Nov. 5 victory, the dollar has gained across the board as markets have priced in expectations not just of a trade war, but also of corporate tax cuts and a tighter labor market due to a clampdown on illegal immigration. Forex experts at Brown Brothers Harriman point out that with the U.S. economy still in a sweet spot and a boost in fiscal spending under Trump likely, the Federal Reserve will have to keep U.S. interest rates higher for longer than previously thought.
Problems at home
But the euro’s home-grown problems have ensured it has lost more than its peers. It’s down 4 percent since the election, while the dollar index, which tracks the greenback against a basket of developed market currencies, is only up 3.4 percent.
