Euro-Dollar Could Fall Below 1.0 as "Trump is Only 30% Priced" Warns Deutsche Bank

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The Euro to Dollar exchange rate (EUR/USD) is hurtling towards parity as the FX market isn't close to fully appreciating the 'Trump Trade'.

Deutsche Bank's top foreign exchange analyst, George Saravelos, told an audience in London on November 21 that "we remain very bearish on EUR/USD."

The call comes as EUR/USD swoons following the release of Eurozone PMI data for November, which showed the bloc's economy flirting with recessionary activity levels.

The odds of a 50 basis point rate cut at the European Central Bank (ECB) in December rose following the data, widening the gap between ECB and Federal Reserve rate expectations, which tends to mechanically weigh on the Euro.

EUR/USD fell to its lowest level in two years at 1.0331 after the numbers were released, but further losses are in store over the coming months, says Deutsche Bank.

"The market is still not pricing a lot of Trump. We remain bullish on the dollar and would view EUR/USD levels of 1.00 as pricing the intensity of the Trump policy mix at closer to 50%, with potential for even greater downside depending on what happens next year," says Saravelos.

The deterioration in French and German politics is one reason S&P Global says the Eurozone's composite PMI unexpectedly fell to 48.1 in November from 50 in October. In addition, businesses appear worried about potential U.S. tariffs from the Trump administration.

At the same time, the U.S. economy continues to outperform, with Trump's tax cuts and deregulation expected to underpin growth in 2025.

Analysts tip the emerging chasm between the Eurozone and U.S. economies to keep EUR/USD pressured.

JP Morgan strategists maintain a 'short' Euro-Dollar recommendation, saying the Republican 'red sweep' at the election was the most USD-bullish potential outcome.

"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."

JP Morgan thinks tariffs and Trump's plans for fiscal policy remain the main transmission channels for global FX from the U.S. elections and it now looks likely that at least the tariffs channel will be activated from the markets perspective.

"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," says JP Morgan.

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However, strategists at the investment banking division of UBS say tactical considerations suggest the Euro should end the year higher against the Dollar than at current levels.

"While we are on board with a stronger longer-term USD bias, we still think that the balance of the year is more likely to bring choppy trading largely within the existing ranges rather than a decisive break to new dollar highs," says UBS strategist Vassili Serebriakov.

He recognises that developments favour the strength of the U.S. Dollar but notes that a sustained range breakout in global FX has proven relatively rare over the past two years.

For this to happen, we would require a constant flow of dollar-positive headlines.

"These may be in shorter supply at least before Trump's inauguration as the recent in-fighting over the Treasury Secretary nomination has highlighted," says Serebriakov.