Financial Association reports on November 20 (Editor Zhao Hao) that influenced by expectations of Trump's tariff policy, several economists stated that in their outlook for 2025, the euro might return to a level equal to the dollar, with an exchange rate of 1:1.

Earlier this month, Trump won the U.S. presidential election, and the Republican Party also secured control of both chambers of Congress. This outcome caused the USD index to soar from around 103 to above 107, the last time it broke above 107 was a year ago.

At the same time, the exchange rate of the euro against the dollar quickly dropped, briefly falling below 1.05 last week, the first time since October 2023. Just two months ago, the trading price of this currency pair was around 1.17, and it has cumulatively fallen nearly 5% this quarter.

Daily chart of EUR/USD

During his campaign, Trump repeatedly mentioned that if he were re-elected, he planned to impose a 10% to 20% tariff on all imported commodities to the USA. In addition to his potential tax cut policies and tightening immigration plans, the market widely believes this will push upward pressure on inflation in the USA.

This also means that the Federal Reserve may lower interest rates at a slower pace than expected and be more cautious in the short term. Analysts at Nomura Securities stated last week that they expect the Federal Reserve to pause rate cuts at the December policy meeting and will only lower rates twice next year based on this.

James Reilly, a senior market economist at Capital Economics, wrote in a report, "Trump's victory has caused the euro to suffer greater losses than most currencies, and we doubt this situation will ease in the short term." Reilly expects that by the end of 2025, the euro will be on par with the dollar.

Earlier this year, investment banks also predicted that the euro would fall to par with the usd, but at that time Trump was not a major factor; it was more about the European Central Bank potentially lowering interest rates earlier and more significantly than the Federal Reserve.

Reilly pointed out that if Europe faces further impacts from Trump's tariff policy, it may relax its monetary policy more quickly. However, he mentioned that there are still some uncertainties—whether the tariffs can be implemented legally, whether they are negotiation tools or semi-permanent, and whether certain countries or commodities will be exempt.

George Saravelos, the global head of forex research at deutsche bank, also stated that the uncertainty around the tariff plan is very high, with key factors being the "scale and speed of (US) policy changes". "If Trump's agenda is fully and rapidly implemented, we might see the euro exchange rate drop to 0.95 or even lower."

Saravelos added that if Trump takes a "more balanced approach"—imposing a two-year deadline with a 10% tax rate, while also being less extreme on deregulation and immigration, the euro could reach the level of 1 usd, but it should not fall below historical lows.

A model from Barclays economists shows that if Europe takes retaliatory measures into account, the euro will be on par with the usd. Goldman Sachs' 2025 forex outlook has yielded similar results, reversing the view that the usd would gradually decline within a year, suggesting that the usd will "strengthen in the long term."

Goldman Sachs economists have lowered their euro forecasts, stating that they no longer believe the economic outlook favors a gradual recovery of the euro. However, the bank also noted that if the trade environment becomes "more moderate" or if the eurozone's real interest rates exceed expectations, the euro could also rise unexpectedly.

Monthly chart of the Euro to Dollar exchange rate

In 2022, the euro to usd exchange rate fell to a historical low of 0.9535 due to the outbreak of the Russia-Ukraine conflict. This week, the geopolitical conflict has once again become a focal point, putting pressure on European assets. Yesterday, Putin signed a bill lowering the threshold for employing nuclear weapons, and that day, Ukrainian forces used US-guided missiles to strike targets within Russia.

Jane Foley, head of forex strategy at Rabobank, told the media that the demand for safe-haven assets has boosted the yen and the Swiss franc, while also supporting the usd. "If this continues, the tensions surrounding Russia and Ukraine could accelerate the downward potential of the euro, increasing the chances of it falling below parity."