Donald Trump - Donald Trump speaking with supporters at a campaign rally at the Phoenix Convention Center in Phoenix, Arizona.
Please attribute to Gage Skidmore if used elsewhere. - Gage Skidmore via Flickr
In recent times, the euro (EUR) has faced challenges against the US Dollar, with political uncertainties in Europe adding to its woes. However, potential developments in the United States may further sway the exchange rate, pushing EUR/USD towards parity.
Deutsche Bank forecasts that the pairing will remain weak, below 1.10 for the upcoming two years, with a possible fall to $1.05 by year-end. Yet, the downward trend for EUR/USD might not stop there.
Trump's trade policy threats and market volatility
The bank warns of potential negative catalysts, including the US election and the level of commitment to an aggressive protectionist trade policy. Former US President Donald Trump has made it clear that he intends to escalate his trade war should he secure another term in office, proposing universal baseline tariffs on most foreign products.
Should Trump manage to win the upcoming presidential race, such a policy would likely exert further downward pressure on the Euro-Dollar pair, potentially pushing it towards parity.
According to Vineer Bhansali, founder of asset-management firm LongTail Alpha, "The consensus view is that Trump will create volatility."
He added that the market has already factored in the said scenario, and the real surprise would be if Trump wins and there's no volatility.
The recent political instability in Europe has not helped the euro's cause, with various crises arising from different member countries. This volatility has contributed to the currency's weakness against the US dollar.
According to Deutsche Bank, the pairing is expected to stay below 1.10 for the next two years. However, there could be more downside risks for the euro should Trump pursue an aggressive protectionist trade policy.
During his tenure as US President, Donald Trump made waves with his protectionist trade policies, which included tariffs on imported goods from various countries. These actions had significant consequences for the global economy and currency markets.
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If Trump wins the upcoming election, he may renew his tariffs on imported goods, which could further weaken the euro against the dollar.
Trump and the Republicans have clearly stated their intent to extend the broad tax cuts enacted in 2017, which are slated to lapse next year.
The former president is also expected to intensify efforts to deport undocumented workers in the US and has proposed imposing 60% tariffs on imports from China, along with 10% tariffs on imports from elsewhere. These moves could exert upward pressure on inflation, possibly altering the market's outlook on interest rate cuts.
In addition, an aggressive protectionist trade policy from the United States could lead to increased tensions between major trading partners.
However, the potential risks facing the Euro-Dollar pair extend beyond political instability in Europe. As the world's largest economy, the United States holds significant sway over global markets, particularly when it comes to trade policies.
Thus, the outcome of the US election could have far-reaching implications for global trade and, subsequently, currency markets.
In a nutshell
If Trump's proposed tariffs come to fruition, they could potentially lead to a major shift in currency markets. The euro might be among the most affected currencies, given Europe's reliance on US imports and its close trade ties with the United States.
In the context of heightened political risks, it may be necessary for traders and investors to adjust their strategies accordingly. This could involve diversifying portfolios, hedging positions,
The outcome of the US election, especially if Donald Trump is victorious and pursues an aggressive protectionist trade policy, could have significant consequences for Europe's common currency. Staying informed about geopolitical developments and adapting trading strategies will be crucial for investors in this uncertain landscape.