The euro-dollar parity is back in focus as Trump’s win sparks trade turmoil.

The prospect of the US introducing new tariffs under President-elect Donald Trump has led economists to say the euro could return to parity with the US dollar in its 2025 outlook.

Since Trump’s decisive victory in the November 5 election, which handed control of both houses of Congress to the Republican Party, US Dollar Index – which measures the greenback against a basket of currencies – has hit its highest level in a year.

The euro has fallen sharply, meanwhile, briefly falling below $1.05 on Nov. 14 for the first time since October 2023. Just two months ago, it was trading around $1.17.

A 10% universal tariff is proposed on all imports. And a 60% tariff on goods from China – along with Trump’s plans to cut taxes and reduce immigration – is widely expected to increase inflationary pressures in the US.

This would cause the Federal Reserve to cut interest rates at a slower pace than expected, and be more cautious in the short term. Higher interest rates generally support the currency.

“The euro has suffered the most as a result of Trump’s victory and we doubt it will go away anytime soon,” James Riley, senior markets economist at Capital Economics, said in a note last week. , predicting that the euro will affect parity. dollar by the end of 2025.

Just as the Federal Reserve may move slowly with rate cuts and boost the dollar, the European Central Bank may now ease monetary policy more than it otherwise would “amid the economic blow of lower exports,” Riley observed.

The economist added that several uncertainties remain – including whether tariffs can be legally implemented, whether they are merely a negotiating tool or semi-permanent, and whether certain countries or goods will be exempted.

George Saravelos, global head of FX research at Deutsche Bank, also said uncertainty was high and key factors would be “the scale and pace of policy changes”.

“If Trump’s agenda is implemented in full force and speed without a counter-policy response from Europe or China, we could see [euro-U.S. dollar] By par, down to 0.95 cents or lower,” Saravelos said in a note, adding that the overshoot would push the trade-weighted dollar to a record high.

A “more balanced approach” by Trump – which still sees a 10% universal tariff with a 2-year implementation period, but with a 30% lower rate on China and less extreme policies on deregulation and immigration – That would see the euro hit $1, Saravelos said, matching the dollar’s historical record but not much higher.

Modeling by Barclays‘ Economists see the euro hitting parity with the dollar with 10 percent tariffs on European products and subsequent retaliation.

The same outcome was floated as a possibility in Goldman Sachs’ 2025 FX Outlook. The bank said the prospect of Trump’s tariffs and fiscal reforms had revised its view that the dollar would fall gradually over the course of the year, instead of seeing the U.S. currency “prolonged strong.”

At the same time, he revised down his euro forecasts, saying his economists “no longer see an economic outlook that is favorable for a gradual recovery of the euro” – factors such as with the risk of global trade uncertainty in the EU, and the ECB continuing. Cut rates while the Fed steps back from gas.

However, Goldman also said that the euro upside could surprise if trade policy becomes “more benign” or if real rates in the euro area – adjusted for inflation – remain higher than expected.

Global markets were rattled on Tuesday after Russian President Vladimir Putin said the country had expanded the circumstances under which it would consider nuclear retaliation. It came as the Kremlin accused Ukraine of firing controversial US-made long-range missiles into its territory after US President Joe Biden approved.