Euro vs Dollar: Balancing Tariffs Amid Economic Shifts

European Central Bank policymaker Pierre Wunsch suggests that a weaker euro reaching parity with the dollar might offset U.S. tariffs' effects on eurozone growth. While this could increase inflation, it aligns with ECB's forecast of further rate cuts. Wunsch advises against forceful reactions to below-target inflation.

The euro's potential dip to parity with the dollar could mitigate the impact of new U.S. tariffs, according to European Central Bank policymaker Pierre Wunsch. Speaking with Reuters, the Belgian central bank governor suggested that while a weaker euro might ease growth concerns, it could simultaneously elevate inflation levels.

Last week's ECB rate cuts were made amidst a bleak economic outlook, further clouded by potential protectionist policies under President-elect Donald Trump. However, Wunsch noted that a depreciating euro could counterbalance the detrimental effects of U.S. tariffs on eurozone imports.

Wunsch, traditionally advocating for higher borrowing costs, expects ECB rates to drop by another percentage point, provided inflation aligns with the ECB's 2% target. He stressed the need for cautious reassessment of the central bank's strategy towards inflation management.

(With inputs from agencies.)