EUR/USD: Risking dipping below parity in Q2 and beyond - Rabobank

For some years, there has been a discussion about the decline of the Western style liberalism that has dominated the developed world since WWII. The rise of populism in parts of Europe is part of that discussion as are the protectionist and nationalist style of policies promoted by Trump, Rabobank's FX analyst Jane Foley notes.

EUR/USD risks parity in Q2 and dipping below that

"Just a few days into his second presidency and Trump has already caused a large degree of disruption. Included in that are his withdrawals from the Paris climate Accord (again) and the WHO. He has also previously raised the threat of the US abandoning Nato, all in the interest of putting 'America First.' Trump's stance, while not wholly surprising, further undermines the liberal principles of cooperation and shared interests."

"In the same vein, the US Administration's position on climate change has resulted in US banks leaving the Net Zero Banking Alliance. Canadian banks are reportedly following suit. Given the risks to competitiveness, perhaps it is inevitable that the FT has reported that various European banks may be considering their position. It is against the backdrop of less cooperation that some commentators have been asking whether the World Economic Forum in Davos is now less relevant than it once was."

"Moreover, against the backdrop of economic malaise in Germany and France, questions are being asked about how Europe can compete with the US given Trump's low regulation and loose fiscal policies. The rally in both the USD and US stocks since early October reflects the enthusiasm with which investors have embraced Trump's policies. While the lack of tariffs on day one has allowed the USD to pause for breath this week, the structural nature of Europe's economic problems and its weak growth outlook suggest that EUR/USD may have further to fall. We maintain our forecast for EUR/USD parity in Q2 and see risk of dips below."