Euro falls against dollar after Trump victory

Euro drops against dollar and yuan

What happens when the single currency loses momentum just as the European economy struggles? The euro has depreciated by 2% against the dollar and 5% against the ruble, according to analyst data. Trump's victory in the US elections was the trigger: markets are pricing in massive tariffs on European products and reduced defense cooperation. The result is a currency sliding toward parity with the dollar, while the yuan barely moves. The lingering question is whether the ECB can contain the decline without further suffocating exporting companies.

Why the euro is falling against the dollar

Trump's victory has changed the landscape. Republicans control the Presidency, Congress, and Senate, giving him free rein to cut taxes and raise tariffs. This combination fuels inflation in the US, forcing the Federal Reserve to keep interest rates high. With higher rates, the dollar strengthens. The euro, meanwhile, lags behind: the EU is in technical recession, Germany is on the brink of stagnation, and fiscal policy cannot provide much more stimulus. Furthermore, the ECB is constrained: raising rates to defend the currency chokes credit; lowering them causes the euro to sink even deeper.

Yuan, ruble, and selective devaluation

Against the yuan, the euro's depreciation has been minimal. Some analysts attribute this to China's interest in keeping its currency weak to boost exports. Against the ruble, the drop is sharper: 5%. Russia, under sanctions and operating a war economy, has seen its currency strengthen due to capital controls and high energy prices. For Europe, a weak euro against the ruble makes gas and oil imports more expensive, fueling inflation. The trap is evident: the more the euro depreciates, the costlier it becomes to import energy, making price control harder.

Impact on the Spanish economy

For Spain, a weak euro has two sides. On one hand, it makes exports cheaper: tourism and the agri-food industry could gain competitiveness. On the other, it raises the cost of importing capital goods and energy, putting upward pressure on production costs. The most exposed sectors are automotive and chemical, which rely on imported components. Additionally, if Trump trinc through on his threat to impose tariffs on European products, Spanish companies will lose access to the US market. Sánchez's government has warned it will defend Spanish interests, but with limited fiscal headroom, there is little it can do.

What can the ECB do?

The ECB faces a dilemma. Raising rates to curb depreciation risks triggering a deeper recession. Lowering them to stimulate credit weakens the euro further. Some economists advocate for foreign exchange intervention, but that would require political consensus that does not exist. ECB President Christine Lagarde has avoided commenting on the euro's level but acknowledged that trade uncertainty is a drag. Meanwhile, investors continue to favor the dollar as a safe haven, feeding the downward spiral.

The future of the single currency

The key question is whether the euro can recover. It depends on three factors: Trump's tariff policy, the evolution of the Chinese economy, and the EU's capacity for fiscal coordination. If Trump cuts taxes and raises tariffs, the dollar will remain strong. If China devalues the yuan, the euro will suffer even more. And if the EU fails to reach an agreement on joint debt issuance, the single currency will remain vulnerable. Markets are already pricing in parity with the dollar in the short term. Recent history shows the euro has survived worse crises, but this time the context is different: the EU lacks a clear economic engine, and political fragmentation hinders any decisive response.