Goldman Sachs Sees Trump's Victory as a Risk for the Euro

Goldman Sachs has warned that the euro could experience significant depreciation if Donald Trump wins the U.S. presidential election. According to a statement by the bank on Tuesday, the euro could drop by as much as 10% if Trump implements extensive tariffs and reduces domestic taxes. This could push the euro below one dollar from its current levels.

The presidential race between former Republican President Trump and Democratic Vice President Kamala Harris is currently tight. However, Trump's radical economic policies are expected to have serious implications for Europe, which is an important trading partner for both the U.S. and China. Goldman Sachs analyst Michael Cahill suggested that if Republicans win the presidency and Congress, higher tariffs and tax cuts to stimulate the economy might be enacted.

Dollar Rise and Euro Fall Prediction
The analysis by Goldman Sachs indicates that in a scenario where the U.S. imposes a 10% tariff on all imports and a 20% tariff on Chinese goods, these tariffs, combined with tax cuts, could cause the dollar to appreciate sharply and the euro to fall between 8% and 10%. The euro last fell below parity in November 2022 and is currently trading at 1.083 dollars.

Such economic measures are likely to drive inflation, leading to higher interest rates in the U.S., which would make the dollar more attractive. Cahill stated, "We expect the strongest response in the dollar to come if Republicans gain power, which would pave the way for larger tariff increases along with domestic tax cuts."

Precaution Against Potential Tariff Increases
According to a report, in a scenario where Trump engages in a narrower trade war focusing only on China, the euro might experience around a 3% decline. However, in the event of Democrats gaining power or a divided Democratic government, markets are considering the possibility of more dramatic changes in tariff policies, which could initially cause some losses for the dollar.

Finally, Goldman Sachs reports that the U.S. economy may pivot away from Europe, with some investors taking positions on likely increased tariffs following a Trump victory. Within these dynamics, the euro continues to experience a 2.7% depreciation against the dollar in October.