Trump’s Red Wave Drives the Euro to $1.05: How Low Could It Go?
The euro recently slumped to $1.05 against the dollar, marking its lowest point in 13 months, as expectations grow around President-elect Donald Trump’s trade policies and tax cuts, which are projected to strengthen the dollar. Analysts caution about further euro weakening, with possibilities of it falling even below parity.
This decline to $1.05 represents the euro’s fifth consecutive session of losses since October 2023, largely fueled by anticipations of a stronger dollar under the forthcoming Trump administration.
With the Republican party now holding control of both the House of Representatives and the Senate, Trump’s second term is poised with the authority to enact aggressive economic policies, carrying significant ramifications for global currency markets.
Trump has suggested a 60% tariff increase on Chinese imports and a 10-20% tariff hike on imports from other nations, posing a substantial threat to European exporters, particularly in sectors like machinery and pharmaceuticals.
Moreover, Trump’s ambition to reduce the corporate tax rate to 15% could enhance US business competitiveness and likely reinforce dollar strength.
Despite Eurostat confirming that the eurozone GDP rose by 0.4% in the third quarter compared to the prior quarter, alongside a 0.2% increase in employment revised from 0.1%, the euro received minimal support under mounting dollar pressure.
The latest Bank of America Global Fund Manager Survey highlighted a major sentiment shift among investors following Trump’s election victory, with 45% of participants now ranking the dollar as their top-performing currency for 2025, a notable increase from 20% in October.
Economists at Goldman Sachs have reduced their growth forecasts for the eurozone, citing concerns regarding increased uncertainty and trade-related repercussions stemming from Trump’s policies. They remarked, “The policy proposals on offer would raise the cost of US imports, lower the cost of doing business domestically, and affect foreign activity levels. We believe this will have direct and significant implications for the dollar on a broad basis.”
Goldman Sachs even suggested that, should US tariffs and tax reductions proceed as outlined, the euro could plummet below parity with the dollar – a situation not witnessed in over two decades.
BBVA’s chief strategist Alejandro Cuadrado pointed out the risk for Europe’s largest economy, indicating that “Potential new US tariffs are a concern, and Germany would be one of the countries most affected.”
He further remarked that with eurozone inflation stabilized, the European Central Bank (ECB) might not feel much pressure to intervene in support of the euro.
Intesa Sanpaolo market strategist Luca Cigognini cautioned: “The dollar continues to hammer the market, pushing all major currencies downward. EUR sees the specter of 1.0500 approaching. The potential break of this psychological support could open a broader bearish trend favoring a fall toward 1.0440.”
Saxo Bank’s chief investment strategist, Charu Chanana, anticipates further decline for the euro, asserting: “The USD still has room to run. Political instability in Europe, coupled with an already fragile economic recovery and the looming threat of tariffs, leaves the euro vulnerable.”
A more cautious perspective on the euro comes from ING forex analyst Francesco Pesole, who noted potential obstacles Trump’s policies might encounter within his own party.
Pesole mentioned Republican Senate leader John Thune, a proponent of free trade, who may resist some of Trump’s aggressive tariff plans.
He also emphasized the downside potential for the dollar, citing stretched long positions and potential dovish signals from an upcoming speech by Federal Reserve Chair Jerome Powell in Dallas later on Thursday.
