Trump’s red wave drives the euro down: How low could it go?

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The euro plunged to $1.05 against the dollar on Thursday, its lowest level since October 2023 and its fifth straight session of losses, as expectations mount for a stronger dollar under Donald Trump’s new administration.

With the Republican party now securing the control of both the House of Representatives and the Senate, Trump’s second term comes with the power to implement aggressive economic policies, which could have significant consequences for global currency markets.

Trump has proposed slapping a 60% tariff increase on Chinese imports and a 10-20% tariff hike on imports from other countries, a strategy that would hit European exporters hard, especially those in machinery and pharmaceuticals.

Additionally, Trump’s ambitions to cut the corporate tax rate to 15% could boost US business competitiveness, likely intensifying dollar strength.

Eurostat confirmed on Thursday that eurozone GDP grew by 0.4% in the third quarter compared to the previous quarter, while employment ticked up by 0.2%, upwardly revised from 0.1%. Despite these figures, the euro found little support as the dollar pressure intensified.

Analysts warn of euro weakness as dollar ‘continues to hammer the market’

The latest Bank of America Global Fund Manager Survey underscored a significant sentiment shift among investors following Trump’s election victory, with 45% of respondents now picking the dollar as their top-performing currency for 2025, up sharply from 20% in October.

Goldman Sachs economists lowered their growth forecasts for the eurozone, citing concerns over heightened uncertainty and trade-related spillovers from Trump’s policies. “The policy proposals on offer would raise the cost of US imports, lower the cost of doing business domestically, and weigh on foreign activity levels. We believe this will have direct and powerful implications for the dollar on a broad basis,” analysts at Goldman Sachs remarked.

Goldman even indicated that, if US tariffs and tax cuts proceed as planned, the euro could fall below parity with the dollar – a scenario not seen in more than two decades.

BBVA’s chief strategist Alejandro Cuadrado highlighted the risk for Europe’s largest economy, noting: “Potential new US tariffs are a concern, and Germany would be one of the countries most affected.”

He added that with eurozone inflation under control, the European Central Bank (ECB) may feel little pressure to intervene to support the euro.

Intesa Sanpaolo market strategist Luca Cigognini warned: “The dollar continues to hammer the market, crushing all major currencies to the downside. EUR sees the spectre of 1.0500 approaching. The eventual break of this psychological support would open a broader bearish front that could favour a collapse toward 1.0440.”

Further downward pressure on euro likely

Saxo Bank’s chief investment strategist, Charu Chanana, sees further downside for the euro, saying: “The USD still has room to run. Political instability in Europe, combined with an already fragile economic recovery and the looming threat of tariffs, leaves the euro vulnerable.”

A more cautious outlook on the euro came from ING forex analyst Francesco Pesole, who noted that Trump’s policies could face obstacles within his own party.

Pesole pointed out that Republican Senate leader John Thune, a free trade advocate, may push back against some of Trump’s aggressive tariff plans.

He also highlighted downside risks for the dollar, citing stretched long positions and potential dovish remarks from upcoming speech by Federal Reserve Chair Jerome Powell in Dallas later on Thursday.