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28 Jun 2024

EUR/USD may face parity risk amid bumpy political backdrop ahead

The euro has struggled recently as political uncertainty in Europe has beckoned once again, but events across the pond in the U.S. may hold even more sway, possibly pushing the euro to parity against the dollar should a Trump White House pursue aggressive protectionist trade policy. 

"We see EUR/USD (and many other dollar pairs) staying weak below 1.10 for the next two years," Deutsche Bank said in a note, according to Forexlive, forecasting the EUR/USD to fall to $1.05 by the end of this year. 

The euro has been under pressure as political uncertainty rocks the continent once again following a surprise snap election in France that could leave the country with a hard-left or hard-right government, or a hung parliament, not only making it difficult to government but likely impacting Europe's overall competitiveness.  

"The main negative impact is on Europe’s long-term competitiveness and strategic autonomy irrespective of who wins," Deutsche Bank added.

ut a downward forecast for the EUR/USD to parity may yet be in the offing, the bank says, flagging the "US election and the extent to which an aggressive protectionist trade policy is pursued" as a potential negative catalyst for the euro. 

Former President Donald Trump has pledged to ramp up his trade war, proposing “universal baseline tariffs on most foreign products,” and floated the idea of levies of on most imports.

If Trump is able to claim victory in the upcoming presidential race, then that would likely be the final nail in the coffin that pushes the euro to parity against the dollar.

"If this is the case, we would be likely to revise our EUR/USD forecast closer to parity," the bank added. 

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