The prospect of the U.S. introducing a swathe of new tariffs under President-elect Donald Trump has led economists to say the euro could return to parity with the U.S. dollar in their 2025 outlooks.
Since Trump’s decisive victory in the Nov. 5 election, which also handed the Republican party control of both houses of Congress, the U.S. dollar index which measures the greenback against a basket of currencies
has soared to its highest level in a year.A proposed 10% universal tariff on all imports and a 60% tariff on goods from China along with Trump’s plans to cut taxes and curtail immigration are broadly expected to drive inflationary pressures in the U.S.That would cause the Federal Reserve to cut interest rates at a slower pace than expected, and to exercise more caution in the short-term.
Higher interest rates generally support a currency.Just as the Federal Reserve may proceed with rate cuts more slowly and boost the dollar, the European Central Bank may now ease monetary policy even more than it otherwise would have amid the “economic blow of slowing exports,”
A number of uncertainties remain, the economist added including whether the tariffs can be legally implemented, whether they would simply be a negotiation tool or semi-permanent, and whether certain countries or goods will be exempte.
