Read more: Letters: Strength of the dollar is key factor for Americans in France
Could the dollar reach parity with the euro?
The euro and dollar last hit parity (where one dollar is worth one euro) in 2022 as the United States Federal Reserve took several measures to address inflation at a time when the EU was affected by an energy crisis.
Today (November 18), the euro and dollar are again close to parity, with one euro worth $1.05, down from a one-year high of $1.12 on September 28.
The rise is driven in large part by the US dollar’s role as a reserve currency, with the markets anxious over President-elect Donald Trump’s proposed tariffs on imports, which would negatively affect European exports.
A Bank of America Global Fund Manager Survey conducted after Mr Trump’s election win found that 45% of respondents identified the dollar as their pick for the best performing currency in 2025, up from 20% of respondents in October.
This effect is amplified by the expected increase in spending and decrease in taxation under the future Trump administration, which would boost the US bond market, according to analysts at finance website BFM Bourse.
In addition to Mr Trump’s proposed 10-20% tariff on imports, he plans to cut US corporate taxes to 15%, which would likely increase the competitiveness of US companies – further strengthening the dollar.
Some economists have warned that the dollar’s rise is likely to continue, with Deutsche Bank expecting the euro to fall below parity in 2025.
“If the Trump agenda is implemented in full force and quickly without a countervailing policy response from Europe or China, we could see euro-dollar drop through parity to 0.95 cents or even below,” wrote the bank’s Global Head of Currency Research after Mr Trump’s win.
Nonetheless, Mr Trump’s proposed tariffs are unlikely to come into effect before the end of 2025, meaning that the current rise of the dollar could be temporary.
Swiss investment bank UBS projects that the current shift in the currency market will stabilise by the end of the year, forecasting the euro to trade at $1.07 in December 2024, then $1.04 in December 2025 and fall to $1.00 by the end of 2026.
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Publish date : 2024-11-18 15:41:00
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