Euro parity with the dollar once seemed like an outside bet. Now it looks like an inevitability.

Traders are rewriting their predictions for the common currency after US President Donald Trump said tariffs on the European Union will “definitely happen,” having made good on threats to impose levies on imports from Canada, Mexico and China. The warnings sent the euro down more than 2 percent to US$1.0141 (HK$7.91), the lowest level since November 2022, and options show sentiment on the currency is the most bearish since July.

The euro has been dragged lower by concern that US restrictions on the region’s export-oriented economies could lead the European Central Bank to cut interest rates even more aggressively. That would further widen the gap to US borrowing costs and boost the appeal of the dollar as a currency to invest in.

“It’s hard to be optimistic on the euro,” said Jordan Rochester, head of FICC strategy at Mizuho Bank, who sees the currency sliding to parity versus the dollar in the first quarter. “Markets now need to price a much higher probability of blanket tariffs or specific EU tariffs coming ahead.”