Euro to Dollar Forecast: "Absolutely," Tariffs and New Lows are Coming

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The Euro is close to testing its 2025 lows against the Dollar following the commencement of a trade war that will soon envelop the EU.

The Euro to Dollar exchange rate (EURUSD) is at 1.0246 as markets adjust to weekend news of a slew of tariff announcements from U.S. President Donald Trump that so far has only impacted China, Canada and Mexico.

However, when asked about EU tariffs by the press, Trump said on Friday, "absolutely... the EU treat us very bad."

On Sunday, he added:

"It will definitely happen with the Europen Union. They're really taking advantage of us. We have over a $300BN deficit. I wouldn't say there is a timeline, but it'll happen very soon.

"They don't take our cars, they don’t take our farm products," Trump said of the EU. "They take almost nothing, and we take everything, and then millions of cars, tremendous amounts of food and farm products."

Canada has enacted its own import tariffs and Mexico and China are readying their own packages.

"Trade War 2.0 begins," says Rohit Arora, Strategist at UBS. "With markets underpricing tariffs premium, our global strategists maintain a preference for Quality and defensives in equities, and for USD and JPY vs. CNH and EUR in FX."

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The EU's economy is particularly geared towards the export of high-end manufactured goods, meaning tariffs risk exacerbating an already notable economic slowdown.

This will invite further interest rate cuts at the European Central Bank (ECB), which will mechanically weigh on the Euro.

Euro-Dollar is in a downtrend, and the February 03 selloff takes it to the vicinity of its 2025 lows, where some buying interest is emerging.

However, the direction of travel is clear and a break to fresh lows looks to be in prospect this week, ahead of a test of parity at some point early in H1.

Goldman Sachs said on Monday that it maintains a view that EUR/USD will fall below parity in the coming months.

"We have previously estimated that the Dollar could appreciate over time by 8-10% against the Euro in a global tariff scenario if policy follows a Taylor rule. There are several layers of assumptions, but we still think it is a helpful starting point," says a note from Goldman Sachs.