Trump's policies are pushing the euro towards parity with the US dollar

Economists expect the euro to fall to and even below parity with the US dollar next 12 months. This would mean that the currencies would have an exchange rate of 1:1.

The euro is utilized by 20 of the 27 nations within the European Union: Austria, Belgium, Croatia, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain.

The currency most recently reached parity with the dollar for the primary time in 20 years in 2022 before recovering.

Now euro parity is “back in sight,” wrote James Reilly, senior market economist at Capital Economics, in a Nov. 11 research note.

“The euro has suffered more than most from Trump’s victory, and we doubt it will ease any time soon,” he wrote.

As of 10 a.m. ET Friday morning, 1 euro was equal to about 1.06 US dollars. That's down about 3% from about $1.09 on the close on Election Day.

The ICE US Dollar Index (DXY) has also been on a winning streak recently, Reilly told CNBC. Last week marked the eighth straight week of a rise within the index, an “extreme increase” that has only occurred thrice since 2000, Reilly said.

Travelers can attempt to capitalize on this currency dynamic by postponing a purchase order until next 12 months. For example, when you book a European hotel or trip that you would be able to book now for 2025 but pay later, you may defer the fee – with the understanding, after all, that this is not any guarantee that the euro will proceed to weaken against the dollar becomes.

Tariffs and trade policies are vital aspects affecting the dynamics of the Euro-USD currency, economists said.

Trump has introduced extensive tariffs against global trading partners.

During the election campaign, he proposed tariffs of 10% or 20% on all imports, including those from the European Union. He pledged Monday to impose a further 10% tariff against China and 25% on all products from Canada and Mexico on his first day in office, signaling his willingness to impose import tariffs.

However, the last word scope and magnitude of the tariff policy is unclear.

Tariffs on Europe could reduce demand for its exports, resulting in a weakening of Europe's economy and a fall in the worth of the euro, economists say.

Interest rate differences even have a big effect on relative currency movements, economists said. They expect the rate of interest differential between the US and the Eurozone to widen partly attributable to the impact of tariffs.

The tariffs are expected to be “inflationary for the U.S.,” Reilly said. These import taxes are paid by U.S. firms, which generally pass on their higher costs to consumers.

Federal Reserve officials could keep rates of interest higher for longer to bring inflation back to its long-term goal. Meanwhile, economists expect the European Central Bank to chop rates of interest further.

Tariffs within the euro zone would likely prompt the ECB to chop rates of interest further to support the European economy, resulting in a widening of the rate of interest differential that “pretty dramatically” favors the dollar, Wells Fargo's McKenna said.

There are other aspects too.

For one thing, the U.S. economy has held up “much better than anyone expected” over the past 12 months or two, in stark contrast to Europe, Reilly said.

Plus, financial markets don't like uncertainty, McKenna said.

If query marks surrounding Trump administration policies unsettle markets within the near term, investors would likely search for U.S. dollar-denominated secure havens reminiscent of U.S. Treasuries, strengthening the dollar, McKenna said.

Of course, there may be a risk that Europe will retaliate with its own tariffs or punish Americans indirectly by raising certain consumer prices, reminiscent of airfares, Reilly said.

“We don’t think that’s going to happen,” he said. “We think Europe wants as much free trade as possible.”