Trump could crash euro if wins election - Goldman Sachs
Photo: Donald Trump (Getty Images)
The euro could fall by 10%, which implies a drop below $1. According to Goldman Sachs, this will happen if Donald Trump imposes wide-ranging tariffs and cuts domestic taxes if he wins the US presidential election on November 5, Reuters reports.
Former Republican President Trump is currently tied with Democratic Vice President Kamala Harris, but Trump's radical economic policies are likely to affect Europe, a key trading partner of both the United States and China.
Goldman Sachs said that a scenario in which Republicans win the presidential election and Congress could lead to higher tariffs and lower domestic taxes, which would stimulate the economy.
Goldman Sachs analyst Michael Cahill said that a 10% US tariff on all imports and a 20% levy on Chinese products could lead to a sharp rise in the dollar and a drop in the euro by 8-10%. Currently, the exchange rate remains at 1.083 euros/dollar. The last time it traded below parity was in November 2022.
Both measures are likely to lead to higher inflation, which implies much higher interest rates in the US than in Europe, making the dollar more attractive.
“We expect the strongest dollar response to come from a Republican sweep, which would open the door to larger tariff increases in combination with domestic tax cuts,” Cahill writes.
According to Cahill, a narrower trade war, in which Trump imposes only additional tariffs against China, could lead to a drop of about 3% in the euro.
"A Democratic sweep or divided Democratic government would likely result in some initial dollar downside, as markets reprice the prospect of more dramatic changes in tariffs,” Goldman Sachs says.
Since the beginning of October, the euro has fallen by 2.7% as the US economy moves away from Europe and some investors prepare for higher tariffs after a possible Trump victory.
