Created on November 07, 2024

• The EUR/USD exchange rate remained in focus following reports that former US President Donald Trump is set to return to the White House.
• Trump’s gains, particularly in key states such as Georgia, North Carolina and Pennsylvania, have heightened investor interest in the US dollar, which posted its biggest one-day gain since March 2020, rising 1.5% against other major currencies.

On the other hand, the euro was the hardest hit among G10 currencies. It had fallen 1.75% against the US dollar to $1.0740 as of 8 a.m. CET, putting it on track for its worst day since March 2020. At 11:18 a.m. CET on Wednesday, the EUR/USD exchange rate showed a slight recovery to 1.0749 on Wednesday after falling to a four-month low of around 1.0682.

Dollar Rises on Expectations of Trump’s Tariff-Heavy Policies

Forex analyst Kyle Chapman of Ballinger Group attributed the dollar’s ​​rise to the market’s positioning for potential Trump-led policies. “The US dollar rocketed across the board in its best day in four years,” Chapman noted. He stressed that Trump’s expected economic approach, which includes inflationary pressures and tariffs, is a key factor. With the New York Times estimating a Trump win chance at more than 95%, financial markets appear to be pricing in the former president’s impact on US trade and economic direction. Chapman’s comments underscore market expectations of a more protective US trade stance, which could impact global trade dynamics.

Many believe that a Trump win could mean an extension of his trade policies in his first term, potentially affecting a wider range of US trading partners, not just China. This expectation is driving the dollar’s ​​strength as investors seek refuge in the US currency, which is now seen as more resilient under Trump.

Euro weakens amid fears of US trade restrictions

The euro has been hit hard by these developments, remaining the weakest among G10 currencies. Ulrich Leuchtmann, head of FX and commodity research at Commerzbank, explained that Trump’s restrictive trade policies are expected to disproportionately impact the eurozone. He noted that “the eurozone is likely to suffer disproportionately from a restrictive US trade policy,” stressing that export-dependent European economies, especially Germany, will face challenges in maintaining growth. Germany’s reliance on exports has been a key component of the eurozone’s economic strength, but a US shift away from open trade flows could upend this dynamic, threatening to exacerbate the eurozone’s growth shortfall. Such a scenario could deepen the euro’s struggles in the coming months, especially if US tariffs are imposed or trade routes are disrupted.

Analysts warn of long-term pressure on EUR/USD:

As analysts see further downside for the euro in the near term, ING FX analyst Chris Turner suggested a tough future for EUR/USD under Trump’s trade policies. He said, “This would be the worst-case scenario for EUR/USD – facing renewed trade wars but without the boost to global growth that extended US tax cuts could provide,”. They expect that if this trend continues, the EUR/USD pair could fall below parity by late 2025.

EUR/USD Technical analysis and forecast:

Currently, the euro price is facing pressure in the near term, with analysts expecting further declines if Trump’s path to the White House remains clear. While some market pricing has already priced in a potential Trump victory, there is a consensus that the EUR/USD pair could approach the 1.0550/1.0600 range in the coming days if the dollar price continues to strengthen. Especially, in light of the limited support from the eurozone for growth under these conditions.

Technically, the euro price is heading for its worst day since March 2020 as Trump’s victory in the US presidential election strengthened the dollar. Obviously, a Trump victory poses significant risks to the European economy. Especially, with potential tariffs on key sectors such as cars and chemicals, along with concerns over security and support for Ukraine.

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