(News Bulletin 247) – While the euro is suffering in 2024, can there be a rebound next year? The design offices are shared. But, overall, not really optimistic.

The euro has not transformed the test into 2024, far from it. In 2023, the euro zone currency recorded an increase against the dollar, for the first time since 2020.

Barring a very unlikely last minute surprise, the eurozone currency will end in the red this year. The euro is currently trading around 1.0418 dollars

which reflects a drop of 5.6% over the whole of 2024. A decline which remains significant on the foreign exchange market, where variations are often contained (one currency “falls” against another when it loses more of 1% over one day), due to the immense volume experienced by this market, with exchanges which can exceed 6,500 billion dollars per day.

The euro was penalized by various factors. The European Central Bank (ECB) began its cycle of key rate cuts in June, three months before the American Federal Reserve (Fed). The last meeting of the American central bank had also hurt the euro, which had fallen by more than 1% against the dollar in the wake of its announcements. The Fed then signaled that it could ease off on rate cuts next year.

Furthermore, the American economy once again held up better, as a whole, than that of the euro zone which suffered from the weakness of its most important economy, namely Germany.

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Trump damaged the euro

The single currency of the euro zone found itself particularly under pressure from October onwards. The European currency then fell against the dollar, going from around $1.11 to $1.05 at the end of November.

The market had started to anticipate (rightly) the victory of Donald Trump in the American presidential election.

For multiple reasons, the policy desired by the elected American president is perceived as favorable to the dollar and therefore unfavorable to the euro. First of all because, although inflationary, it is supposed to amplify growth in the United States, which would support the American currency. Then because the increase in customs duties desired by the Republican, particularly with regard to China, risks harming other international currencies.

Donald Trump’s agenda incorporates “a realistic possibility of US tariffs of 60% or more on China and across-the-board tariffs of 10% or more, increasing the chances that ex-US dollar currencies will depreciate through against the greenback to anticipate the loss of competitiveness in American markets implied by customs duties,” explained UBS.

Dollar strength unlikely to fade

What to expect for 2025? The different research offices have slightly divergent forecasts for the euro against the greenback. But roughly speaking, the European currency risks finding itself under pressure again next year. The euro “is ‘priced’ for pessimism (the price of the euro on the market includes bad news, Editor’s note)”, underlines Goldman Sachs. The American bank also sees the euro falling to $1.03 over a twelve-month horizon.

“By 2025, the current strength of the dollar should not fade, in our opinion. Obviously, the risk will be oriented towards a further rise in the dollar during the first half of 2025”, judges for its part the bank Swiss Safra Sarasin.

Obviously, a lot will depend on the implementation of Donald Trump’s campaign promises, who therefore mentioned the establishment of customs duties of 60% for imports from China, and of 10% to 20% for other countries. . The Barclays bank, in a note, estimated that – all things being equal – the implementation of customs tariffs of 10% on European imports would cause the euro to fall to 1.01 dollars (from a rate of theoretical reference of 1.10 dollars for one euro).

Strategists at JPMorgan AM believe the tariffs against China will be implemented because there is bipartisan consensus in the United States that China is an “unfair trader.” But they think that other countries will have room for negotiation.

“It is unclear whether the president can impose a universal tariff by executive order. He has the authority to apply targeted unilateral tariffs, but applying across-the-board tariffs appears to require Congressional intervention, which which will take time,” they explain.

Monetary policy divergence

UBS is only considering the implementation of customs tariffs against China. But even in this scenario “we are entering a strong dollar environment”, warns the Swiss bank. The Swiss establishment sees the eurodollar ending at 1.04 at the end of December 2025 but above all at 1 dollar a year later.

Deutsche Bank, for its part, expects one euro to equal 1.03 dollars at the end of 2025. But, according to the German bank’s forecasts, the euro should first reach parity at the end of the second quarter of 2025.

Deutsche Bank anticipates a divergence in monetary policies in 2025. The European Central Bank (ECB) should, according to its projections, continue to lower its rates, with the deposit rate falling from 3% currently to 1.5% at the end of 2025. Conversely, the American Federal Reserve (Fed) would end its reduction cycle. Deutsche Bank has therefore not decided on any additional rate cuts in 2025.

A comeback in the second half?

The German bank estimates that the US economy will continue to show solid growth, with growth in gross domestic product close to 2.5%, while pressures on the labor market will ease, with the unemployment rate below 4% at the end of 2025. Which will create inflationary pressures and push the Fed to stay on the sidelines.

Customs tariffs would also put the euro under pressure, even if Deutsche Bank has retained customs duties of only 5%, which would, moreover, be likely to be implemented at the end of 2025-early 2026. The German bank estimates , moreover, that the euro should rebound in the second part of 2025, supported by fiscal stimulus measures, particularly in Germany.

Bank of America, unlike its colleagues, sees the euro recovering against the dollar, counting on a euro at 1.10 dollars at the end of December 2025.

The American establishment, however, predicts a difficult start to the year for the euro zone currency, with the euro at $1.03 at the end of March before rising to $1.05 at the end of June.

The American bank anticipates a “complicated” first half due to uncertainties over American policy and a more accommodating monetary policy from the ECB than from the Fed. The delicate political situation in France may also “pose downside risks” to the euro, she writes.

Bank of America then expects a “mirror effect” in the second half, with fewer risks on American politics and a growth gap between the United States and the euro zone which would narrow, while the American labor market would slow down. So many elements which would be favorable to the euro and which would allow it to recover in the second part of 2025.