Since the euro came into existence in 1999, the currency has traded at equal value to the U.S. dollar only a handful of times. The last instance was in 2022, after Russia’s full-scale invasion of Ukraine sparked an energy crisis in Europe and provoked fears of a recession, plunging the currency pair to a 1:1 ratio for the first time in two decades. Now, market watchers see a chance it will happen again.
Why is the euro falling?
Europe is one of the regions most vulnerable to U.S. President-elect Donald Trump’s threat to increase tariffs on U.S. imports. The U.S. is a big buyer of the European Union’s exports, from cars to chemicals to luxury handbags, and tariff hikes would weigh on the single market’s already weakening economy. Growth has been anemic in the euro area, and interest rates there are lower than in other developed economies. (Lower interest rates mean euro-denominated assets earn less interest, reducing demand for the currency.) In addition, political turmoil in France and Germany — the two biggest economies in the EU — has increased the risks of investing in those countries and made it harder for their governments to fix structural issues holding back growth.
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