Investing.com – The euro has struggled recently as political uncertainty in Europe returns, but events across the pond in the U.S. could have a bigger impact, potentially pushing the euro toward parity against the dollar if the Trump White House pursues aggressive protectionist trade policies.
“We expect EUR/USD (and many other USD pairs) to remain weak below 1.10 over the next two years,” Deutsche Bank said in a note, according to Forex Live, forecasting EUR/USD to fall to $1.05 by the end of this year.
The euro has come under pressure as political uncertainty has returned to the continent following snap elections in France that could leave the country with a far-left or far-right government, or a hung parliament, which would not only make forming a government difficult but would likely impact Europe’s overall competitiveness.
“The main negative impact will be on Europe’s long-term competitiveness and strategic autonomy regardless of who wins,” Deutsche Bank added.
The bank says a bearish outlook for EUR/USD parity could be in the near future, citing “the US elections and the extent of aggressive protectionist trade policy” as a potential negative catalyst for the euro.
Former President Donald Trump vowed to escalate his trade war, proposing “global base tariffs on most foreign products” and floating the idea of imposing tariffs on most imports.
If Trump is able to claim victory in the upcoming presidential race, this will likely be the final nail in the coffin of the euro, pushing the euro to parity against the dollar.
“If this is the case, we will likely revise our EUR/USD forecast to closer to parity,” the bank added.