The euro exchange rate against the dollar will fall before the German elections

The euro fell to a two-year low against the dollar amid political uncertainty in Germany, falling manufacturing indexes and a possible sharp cut in interest rates by the European Central Bank to support the EU economy. Traders believe the euro could reach parity with the dollar, which has happened only twice since the currency was launched in 1999.

The euro fell 1% to $1.0335/€ last week, its lowest since November 2022, as business activity in the EU's two largest economies contracted more than expected. Thus, the manufacturing index of the Eurozone Composite PMI decreased from 50.0 to 48.1 (an indicator below 50 indicates a decline), in particular in France - from 48.1 to 44.8, and in Germany - from 48.6 to 47.3.

Over the past three months, the euro has been one of the worst performing currencies in the Group of 10 due to political crises in France and Germany, as well as Trump's possible introduction of tough tariffs that will hurt the EU's export-dependent economies.

The most popular politician in Germany B. Pistorius has withdrawn his candidacy for the post of head of the Social Democratic Party (SPD) in the early elections to be held on February 25, 2025. With this, he will help the re-election of Chancellor Scholz, who has a low rating, which could lead to a deterioration in the party's ratings, an increase in the number of mandates for right-wing parties and difficulties in forming a new coalition.

In October, the number of corporate bankruptcies in Germany increased by 23%, and in general, in 2024, it may exceed 20,000, Bild predicts.

A fall in the exchange rate of the euro against the dollar will make the EU market uninteresting for Ukrainian agricultural products, which has already led to a decrease in corn prices. In addition, the deterioration of the EU economy will reduce support for Ukraine, especially from Germany, which is the largest supplier of military and humanitarian aid.