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Euro is predicted to hit parity with the dollar
Economists expect the euro to fall to and even below parity with the U.S. dollar next yr. That might mean the currencies had a 1:1 exchange rate.
The euro is utilized by 20 of the 27 nations within the European Union: Austria, Belgium, Croatia, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.
The currency most recently hit parity with the dollar in 2022, for the primary time in 20 years, before rebounding.
Now, euro parity is “back on the cards,” James Reilly, senior markets economist at Capital Economics, wrote in a research note Nov. 11.
“The euro has suffered greater than most within the wake of Trump’s victory and we doubt that may let up anytime soon,” he wrote.
As of 10 a.m. ET on Friday morning, 1 euro equaled about $1.06. That is down about 3% from roughly $1.09 as of market close on Election Day.
The ICE U.S. Dollar Index (DXY) was also recently on a winning streak, Reilly told CNBC. Last week marked the eighth straight week of gains within the index, an “extreme run” that had only happened 3 times since 2000, Reilly said.
Travelers can attempt to benefit from these currency dynamics by delaying a purchase order until next yr. For instance, a European hotel or tour that means that you can book now for 2025 but pay later enables you to defer the expense — understanding, in fact, that it isn’t a guarantee the euro will proceed to weaken against the dollar.
Tariffs, rates of interest and a powerful economy
Tariffs and trade policy are major aspects influencing euro-USD currency dynamics, economists said.
Trump has floated broad tariffs on global trading partners.
The final word scope and magnitude of tariff policy are unclear, nonetheless.
The euro has suffered greater than most within the wake of Trump’s victory and we doubt that may let up anytime soon.
James Reilly
senior markets economist at Capital Economics
Tariffs on Europe could reduce demand for its exports, causing Europe’s economy to weaken and the euro to lose value, economists said.
Interest-rate differentials even have a big influence on relative currency movements, economists said. They expect the interest-rate spread between the U.S. and eurozone to widen due partly to tariff impact.
Tariffs are expected to “be inflationary for the U.S.,” Reilly said. Those import taxes are paid by U.S. businesses, which generally pass their higher costs onto consumers.
U.S. Federal Reserve officials may keep rates of interest higher for longer to bring inflation back to their long-term goal. Meanwhile, economists expect the European Central Bank to maintain cutting rates.
Tariffs on the eurozone would probably lead the ECB to chop rates further, in a bid to prop up the European economy, making a widening rate differential that “pretty dramatically” favors the dollar, said McKenna of Wells Fargo.
There are other aspects, too.
For one, the U.S. economy has “held up quite a bit higher than anyone has been expecting” over the past yr or two, in stark contrast with Europe, Reilly said.
Also, financial markets dislike uncertainty, McKenna said.
If query marks around Trump administration policy unsettles markets within the short term, investors would likely search out safe-haven assets denominated in U.S. dollars, reminiscent of U.S. Treasury bonds, thereby strengthening the dollar, McKenna said.
In fact, there is a risk Europe retaliates with its own tariffs or someway penalizes Americans by raising certain consumer prices, reminiscent of airfares, Reilly said.
“We do not think that may occur,” he said. “We expect Europe wants as free trade as it may possibly.”
