All eyes are on the next steps of the new U.S. president, Donald Trump, regarding his trade policy, while Europe is already dealing with the euro approaching parity with the dollar.

Since Trump’s election last November, the euro-to-dollar exchange rate has been steadily declining. Markets had anticipated the shifts under the second Trump administration, reinforcing the economic slowdown seen in the EU over the last two years. This downturn was further worsened by political and economic crises in France and subsequently in Germany. Even as a presidential candidate, Trump’s threats of new tariffs on European imports caused unease. After the election, fears turned into anxiety, now affecting both the European Commission and the ECB.

The introduction of emergency energy measures, the removal of restrictions on oil and gas production, and the U.S.’s withdrawal from the Paris Agreement have complicated the tariff situation with Europe. The EU, a major buyer of U.S. liquefied natural gas—meeting 20% of its needs—expects its dependence to grow following the suspension of gas flows through the Ukrainian pipeline, a move impacting Central European nations most.

The new U.S. administration’s focus on dominating the energy market, alongside oil and gas supply expansions, aligns with concerns over inflationary pressures now reaching Europe. Oil and gas prices have surged since the year began, with Brent crude climbing to $80 per barrel from $74 in December, and natural gas increasing to €50 per thermal megawatt-hour from €45 in December.

During winter, Europe’s renewable energy output is notably low, while this season’s harsh weather has driven up energy demand. As a result, Europe’s storage facilities are now only 65-67% full, compared to 95% at the same time in 2024.

The euro’s weakening against the dollar makes energy imports, priced in dollars, increasingly costly even if prices remain stable. This trend exacerbates inflation, directly impacting households through higher energy expenses. However, the ECB appears relatively unconcerned, projecting inflation to ease to its 2% target by mid-year. At the same time, it plans to reduce interest rates four times, lowering borrowing costs in the Eurozone from 3% to 2%.