There might be some deals for Americans visiting Europe next year.
The euro-US dollar exchange rates are to blame for that. According to analysts, the euro is expected to decline much more in 2025 and possibly even into 2026 after weakening against the US dollar in recent weeks.
Brendan McKenna, an international economist at Wells Fargo Economics, said it is good news for American tourists visiting Europe. According to him, they could see a considerable increase in their purchasing power.
Due to the euro’s decades-long dominance over the dollar, travelers now pay more for products and services denominated in euros.
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However, analysts predicted that the U.S. dollar would strengthen and the euro would weaken due to predicted policies under President-elect Donald Trump’s upcoming government, including tariffs, and other economic factors.
Euro is expected to hit parity with the dollar
Next year, the euro is predicted by economists to drop to parity with the US dollar, if not below it. That would indicate a 1:1 exchange rate between the currencies.
Austria, Belgium, Croatia, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain are among the 20 countries in the European Union that utilize the euro.
For the first time in twenty years, the currency most recently fell to parity with the dollar in 2022 before rising again.
James Reilly, senior markets economist at Capital Economics, stated in a research report on November 11 that euro parity is now likely to return.
He stated, “We doubt that will let up anytime soon, as the euro has suffered more than most in the wake of Trump’s victory.”
One euro was worth roughly $1.06 as of Friday morning at 10 a.m. ET. At the conclusion of business on Election Day, it was trading at about $1.09, down nearly 3%.
Reilly told CNBC that the ICE U.S. Dollar Index (DXY) had also been winning lately. According to Reilly, the index had advances for eight consecutive weeks last week, an unprecedented streak that has only occurred three times since 2000.
By postponing a purchase until the following year, travelers can attempt to benefit from these currency fluctuations. A European hotel or tour that lets you book now for 2025 but pay later, for instance, allows you to postpone the cost. Of course, this does not guarantee that the euro will continue to depreciate against the dollar.
Tariffs, interest rates and a strong economy
According to experts, trade policy and tariffs have a significant impact on the dynamics of the euro-USD exchange rate.
Trump has proposed imposing sweeping tariffs on trading partners around the world.
He suggested 10% or 20% tariffs on all imports, including those from the European Union, throughout the campaign trail. He indicated his willingness to enact import levies on Monday by promising to apply 25% tariffs on all goods from Canada and Mexico and an additional 10% tariff on China on his first day in office.
However, it is unknown what the final extent and size of tariff policy will be.
Economists warned that imposing tariffs on Europe might hurt its economy and devalue the euro by lowering demand for its goods.
According to economists, interest-rate differences also significantly impact relative currency fluctuations. They anticipate that the impact of tariffs will contribute to the widening of the interest-rate differential between the US and the EU.
According to Reilly, tariffs are anticipated to cause inflation in the United States. U.S. companies pay such import tariffs and typically pass on their higher prices to customers.
In order to return inflation to their long-term goal, U.S. Federal Reserve authorities may decide to maintain higher interest rates for an extended period of time. Economists anticipate that the European Central Bank will continue to lower interest rates.
According to McKenna of Wells Fargo, tariffs on the eurozone would likely force the ECB to lower interest rates even more in an effort to support the European economy, increasing the rate disparity and significantly favoring the dollar.
There are further aspects as well.
In sharp contrast to Europe, the U.S. economy has fared much better over the last year or two than anyone had anticipated, according to Reilly.
According to McKenna, financial markets also detest uncertainty.
According to McKenna, investors would probably look for safe-haven assets denominated in US dollars, including US Treasury bonds, if uncertainty surrounding Trump administration policy unsettles markets in the near future. This would strengthen the currency.
Naturally, there’s a chance that Europe would retaliate with tariffs of its own or penalize Americans in some other way by rising consumer prices, like airlines, according to Reilly.
He stated, “We don’t think that will happen.” Europe, in our opinion, wants as much free trade as possible.
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