Political crises in Europe, election of Trump: will the dollar reach parity with the euro?

The US dollar has risen almost 4% since the election of Donald Trump in early November. On Monday, December 16, one dollar exchanged for 0.9513 euros — compared to 0.8983 euros three months earlier, an increase of 5.9% against the single currency.

Two main factors contribute to the rise of the dollar and the depreciation of the euro.

The dollar was no longer permanently at par with the euro from the launch of the currency in 1999 until its entry into circulation in 2002. The United States was then considered less attractive by investors, the country’s current balance having reached 4% of GDP. At the same time, the budget surpluses recorded over the 1998-2001 period — for the first time since the end of the 1960s — turned into a deficit from 2002.

The “parity” of one currency with another constitutes, in itself, a largely symbolic level. In the fall of 2022, the “fall” of the euro against the dollar did not so much reflect the depreciation of the single currency as the rise of the American dollar .

• Donald Trump pledged during the campaign to work towards a devaluation of the dollar, once in the White House. A weaker dollar would support U.S. industries, while a stronger currency makes exports less competitive.
• Several experts, however, doubt Trump’s ability to devalue the dollar: conversely, most of the policies he wishes to implement — from tariffs to tax cuts — would likely lead to a strengthening of the dollar.
• These measures should help support US inflation, forcing the Federal Reserve to maintain high interest rates which will in turn attract foreign capital to dollar-denominated assets, thus supporting the US currency.

The US Federal Reserve is currently holding its last monetary policy meeting of the year, with a decision expected tomorrow, Wednesday December 18. The vast majority of experts predict a further rate cut of 25 basis points, followed by a pause in January.