Euro Falls to One-Year Lows

LONDON (Reuters) – The euro has fallen to one-year lows, reviving talk the currency could hit the $1 mark. Donald Trump's U.S. election win raises the prospect of a hike in tariffs that could deal a fresh blow to the euro zone economy.

At around $1.06, the euro has slumped nearly 5% from more than one-year highs in September when a weakening economic outlook stopped it in its tracks.

Euro/dollar is the world's most actively traded currency pair.

What's Driving the Move in the Euro?

1. Could the Euro Hit $1?

It's possible. Parity is just 6% away and the euro has traded below that level before – once in the early 2000s and again for a few months in 2022. For traders, the $1 mark is a key psychological level. A fall below could exacerbate negative euro sentiment, leading to further depreciation.

Big banks including JPMorgan and Deutsche Bank reckon a drop to parity could happen, depending on tariffs.

2. What Does It Mean for Businesses and Households?

A weak euro typically raises import costs, which can aggravate inflation, although inflation has fallen recently. A weaker euro makes exports cheaper, benefiting European manufacturers and investors receiving overseas income, particularly in Germany.

3. Is the Euro Being Singled Out?

Not necessarily. Other currencies have also been hit by tariff worries. The euro has lost 4.75%, while other currencies like the Mexican peso and Korean won have suffered similar declines.

4. Is It Really That Bad?

Not all views are pessimistic for the euro; some banks see parity as possible but not probable. There is potential for economic growth which could support the euro.

5. What Does It Mean for the ECB?

The ECB is in a better position than during previous euro weaknesses. With inflation trending lower, a fall to $1 shouldn't heavily impact ECB policies. The central bank focuses on the euro’s performance against other currencies, where it isn't appearing weak.