Market News

ABN Amro Bank NV and ING Groep NV predict one euro could buy one dollar in the coming months. Mizuho Financial Group Inc. and Deutsche Bank AG are among those lowering their forecasts closer to parity, anticipating the euro-dollar pair will slide to 1.03 and 1.05, respectively, by year-end.

Differing trajectories on interest rates in Europe and the US are forcing strategists to reconsider their predictions. While Trump’s policies are seen as fueling inflation and curbing the Federal Reserve’s ability to cut rates, his promise of global trade tariffs could crank up the pain for Europe’s sputtering economy, requiring steeper easing by the European Central Bank.

“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,” said Georgette Boele, a strategist at Rabobank, who correctly predicted the euro and dollar hitting that level in 2022.

The euro led losses among Group-of-10 peers on Wednesday, tumbling at one point by 2.1%, the biggest drop since June 2016. European bonds advanced, meanwhile, on the prospect of deeper ECB cuts.

“Trump is back and everybody has been fearing this moment,” said Michael Strobaek, global chief investment officer at Lombard Odier. “It’s very clear this outcome, in relative terms, is not great for European assets.”

Lombard Odier sees the ECB’s terminal rate at 1.5% or even below 1%, compared with 3.5% for the Fed’s key rate.

Money markets are betting on one percentage point of Fed cuts around 1.30 percentage points of ECB reductions by September next year. That marks a widening since Tuesday when pricing pointed to 1.1 percentage points and 1.16 percentage points, respectively.

Going into the US vote, bets on euro-dollar parity were on the rise in options markets. Still, while the level of 1-for-1 now seems more likely, it’s not imminent, according to ING.

“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,” said Chris Turner, head of currency strategy at ING. “$1.05 looks 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.”

--With assistance from Greg Ritchie.