By Harry Robertson
LONDON (Reuters) – Goldman Sachs said on Tuesday the euro could fall as much as 10% – implying a decline below $1 from current levels – in a scenario where Donald Trump imposes widespread tariffs and cuts domestic taxes if he wins the November 5 elections. US presidential election.
Republican former President Trump is currently neck and neck with Democratic Vice President Kamala Harris, but Trump’s radical economic policies would likely have a bigger impact on Europe, a major trading partner of both the United States and China.
Goldman said a scenario in which Republicans win the presidency and Congress could lead to higher rates and domestic tax cuts that would act as a stimulus for the economy.
A 10% US tariff on all imports and a 20% tariff on Chinese products, combined with tax cuts, could cause the dollar to rise sharply and the euro to fall 8% to 10%, Goldman Sachs said analyst Michael Cahill in a note on Tuesday. The euro last traded at $1.083. The stock last traded below par in November 2022.
Both measures would likely drive up inflation, leading to significantly higher interest rates in the US than in Europe, increasing the dollar’s appeal.
“We expect the strongest dollar response to come from Republican action, which would open the door to larger rate increases combined with domestic tax cuts,” Cahill wrote.
A smaller trade war, in which Trump merely imposes further tariffs on China, could send the euro down about 3%, Cahill said.
“A Democratic victory or a divided Democratic government would likely result in an initial decline in the dollar as markets revalue the prospect of more dramatic rate changes.”
The euro is down 2.7% so far in October as the U.S. economy has retreated from Europe and some investors have positioned themselves for higher rates after a potential Trump victory.
