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According to research from JP Morgan, the Euro could move to parity with the Dollar in the coming quarters.
The investment bank says the Republican 'red sweep' at the election was the most USD-bullish potential outcome possible, and strategists maintain a 'short' Euro-Dollar recommendation.
"We maintain dollar longs in anticipation of clarity on U.S. policy soon, including the realisation of tariff risks and more fleshed out fiscal ambitions," says Patrick R Locke, an analyst at JP Morgan. "Sell EUR/USD outright."
Markets are highly attentive to further developments from the incoming administration as these should signal the policy framework.
Trump has already shown he intends to move quickly, appointing controversial names to key roles to ensure he gets his agenda enacted in the shortest possible timeframe.
"Tariffs and fiscal policy remain the main transmission channels for global FX from the US elections and it now looks likely that at least the tariffs channel will be activated from the markets perspective," says Meera Chandan, FX Strategist at JP Morgan.
She explains the 'red sweep' outcome amplifies USD "exceptionalism" on multiple channels:
"No other currency has what the dollar has: superior growth and equities, higher yield, defensive attributes. Even with no official tariff announcement, the sentiment shock in other countries could be material which should eventually strengthen USD."
Analysts think the path to parity will be aided by the European Central Bank (ECB), which will loosen policy further to support the economy.
JP Morgan forecasts a multi-quarter path for EUR/USD to 1.00-1.02.
Consensus projections for the next four quarters, compiled from leading investment banks.
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