Americans traveling to Europe subsequent yr could also be in retailer for some bargains.
That’s as a consequence of euro-U.S. dollar trade charges. The euro has weakened towards the U.S. greenback in latest weeks and is poised to fall additional in 2025 and maybe into 2026, economists mentioned.
“That’s a very good factor for American vacationers touring overseas in Europe,” mentioned Brendan McKenna, a global economist at Wells Fargo Economics. Their buying energy might rise “fairly considerably,” he mentioned.
The euro has largely been stronger than the greenback for many years, making it pricier for vacationers to purchase items and providers denominated in euros.
But anticipated insurance policies beneath President-elect Donald Trump’s incoming administration, comparable to tariffs, and different financial dynamics are anticipated to bolster the U.S. greenback and depreciate the euro, economists mentioned.
Euro is anticipated to hit parity with the greenback
Economists count on the euro to fall to and even under parity with the U.S. greenback subsequent yr. That would imply the currencies had a 1:1 trade price.
The euro is used 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, the Netherlands, Portugal, Slovakia, Slovenia and Spain.
The foreign money most just lately hit parity with the dollar in 2022, for the primary time in 20 years, earlier than rebounding.
Now, euro parity is “again on the playing cards,” James Reilly, senior markets economist at Capital Economics, wrote in a analysis observe Nov. 11.
“The euro has suffered greater than most within the wake of Trump’s victory and we doubt that may let up anytime quickly,” he wrote.
As of 10 a.m. ET on Friday morning, 1 euro equaled about $1.06. That’s down about 3% from roughly $1.09 as of market shut on Election Day.
The ICE U.S. Dollar Index (DXY) was additionally just lately on a profitable streak, Reilly informed CNBC. Last week marked the eighth straight week of features within the index, an “excessive run” that had solely occurred 3 times since 2000, Reilly mentioned.
Travelers can attempt to benefit from these foreign money dynamics by delaying a purchase order till subsequent yr. For instance, a European lodge or tour that lets you guide now for 2025 however pay later permits you to defer the expense — understanding, in fact, that it’s not a assure the euro will proceed to weaken towards the greenback.
Tariffs, rates of interest and a robust economic system
Tariffs and commerce coverage are main components influencing euro-USD foreign money dynamics, economists mentioned.
Trump has floated broad tariffs on international buying and selling companions.
On the marketing campaign path, he proposed tariffs of 10% or 20% on all imports, which would come with these from the European Union. He vowed Monday to impose a further 10% tariff on China, and 25% tariffs on all merchandise from Canada and Mexico, on his first day in workplace, signaling his willingness to implement import taxes.
The final scope and magnitude of tariff coverage are unclear, nevertheless.
Tariffs on Europe might scale back demand for its exports, inflicting Europe’s economic system to weaken and the euro to lose worth, economists mentioned.
Interest-rate differentials even have a big affect on relative foreign money actions, economists mentioned. They count on the interest-rate unfold between the U.S. and eurozone to widen due partly to tariff influence.
Tariffs are anticipated to “be inflationary for the U.S.,” Reilly mentioned. Those import taxes are paid by U.S. companies, which usually move their larger prices onto shoppers.
U.S. Federal Reserve officers could maintain rates of interest larger for longer to bring inflation back to their long-term goal. Meanwhile, economists count on the European Central Bank to keep cutting rates.
Tariffs on the eurozone would in all probability lead the ECB to chop charges additional, in a bid to prop up the European economic system, making a widening price differential that “fairly dramatically” favors the greenback, mentioned McKenna of Wells Fargo.
There are different components, too.
For one, the U.S. economic system has “held up rather a lot higher than anybody has been anticipating” over the previous yr or two, in stark distinction with Europe, Reilly mentioned.
Also, monetary markets dislike uncertainty, McKenna mentioned.
If query marks round Trump administration coverage unsettles markets within the brief time period, traders would seemingly hunt down safe-haven belongings denominated in U.S. {dollars}, comparable to U.S. Treasury bonds, thereby strengthening the greenback, McKenna mentioned.
Of course, there’s a threat Europe retaliates with its personal tariffs or by some means penalizes Americans by elevating sure shopper costs, comparable to airfares, Reilly mentioned.
“We don’t suppose that may occur,” he mentioned. “We suppose Europe desires as free commerce as it could.”
