The euro once again is on the verge of reaching parity with the US dollar. What drivers are pushing EUR/USD down to the 1:1 level? Analysts pinpoint the following factors: Donald Trump with his tariffs and the European Central Bank with another rate cut. Bloomberg is on alert, warning markets that such a scenario became a reality after recent developments on the economic stage.
Donald Trump reminded the world that his trade tariffs can target anyone—from Europe to China. At the same time, ECB President Christine Lagarde stated that such barriers would only worsen a complicated situation. To make matters worse, she announced a second rate cut. This sparked speculations about a rapid pace of monetary easing. In turn, the euro slid downward as expected, ending its third consecutive week of losses against the US dollar and setting a record one-week drop against the British pound.
By and large, EUR/USD parity is realistic, especially if Donald Trump wins and fully implements his tariff pledges, senior currency strategist at Pictet Wealth Management Michael Hart predicts a dynamic for EUR/USD. Deutsche Bank and Pictet no longer see parity as a far-fetched idea. Besides, JPMorgan and ING Groep even foresee that the euro could reach this level by the end of the year.
The options markets are buzzing: traders are actively increasing bets against the euro. The risk reversal indicator for the EUR/USD pair now shows the most pessimistic sentiment in the last three months. Apparently, the markets are already bracing for the euro’s protracted weakness.
Wells Fargo’s strategist Aroup Chatterjee is also betting on the US dollar’s strength. He points out that Europe is too sensitive to any external political shifts, and Trump's tariff threats make traders rush to buy the greenback. Meanwhile, the Chinese yuan and the Mexican peso are traditionally in the danger zone. Europe’s weak economy makes it a "golden target." US tariffs could severely derail global trade, leaving Europe's economy in a vulnerable position.
The ECB is poised to continue easing its monetary policy. So, by 2025, the euro could once again fall to parity with the US dollar—although markets are largely ignoring this for now, perhaps hoping for a miracle or at least a bit of luck.
Who is to blame? Trump, of course, is not sitting quietly. In a recent interview with Bloomberg, he stated that "tariffs are the most beautiful word in the dictionary," and promptly took a jab at the European Union for its unfair treatment of the US. In his view, the trade deficit with Europe is outrageous, and the matter has to be settled immediately.
While the election outcome remains a mystery, Deutsche Bank’s head of global currency research George Saravelos reminds us that if Trump wins, the trade war with China could push the ECB to take even more aggressive steps. In that case, the EUR/USD pair could easily reach 1:1, leaving investors hoping for better times ahead.
