Donald Trump‘s recently confirmed return to the White House is likely to result in the European Union’s currency, the euro, trading at par with the U.S. dollar by year-end, according to predictions from two Dutch banks. Other banks, including Japan’s Mizuho Financial Group Inc. and Deutsche Bank AG, forecast the euro will trade closer to parity, at 1.03 and 1.05, respectively, by the end of 2024. The euro last traded at par with the U.S. dollar in July 2022.

Fears of costly trade wars under a second Trump presidency fuel projections of the euro sliding to parity. Additionally, Trump’s policies are seen as fueling inflation and limiting the U.S. Federal Reserve’s ability to cut rates, according to a Bloomberg report. Georgette Boele, strategist at Rabobank, notes Trump’s approach contrasts with the European Central Bank’s (ECB) efforts to lower borrowing costs.

“With the Fed raising rates or keeping rates high to fight inflation just as the ECB continues to lower rates likely at an accelerated pace, the widening interest rate differential is likely to weigh on the euro, possibly hitting parity,” the strategist said.

Donald Trump’s initial term was marked by a tariff war between the U.S. and China, resulting in an estimated $80 billion in new taxes on Americans. The trade war led to higher prices, reduced goods and services, and economic burdens on U.S. and Chinese businesses and consumers.

Observers believe Trump’s return to the Oval Office could the U.S. revive the trade war. According to Michael Strobaek, CIO at Lombard Odier, this would have negative implications for European assets.

While some experts predict the euro to reach parity with the dollar within a few weeks, Chris Turner, currency strategist at ING forecasts this to happen sometime in 2025.

“Rate spreads are widening against the euro and a new risk premium will need to be added in for protectionism and potentially geopolitical risk too. $1.05 looks like the immediate target over the coming weeks, but a move to parity may need to wait until later in 2025 when the full force of the protectionist blast becomes clear,” the strategist opined.

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