ECB’s Wunsch: Impact of tariffs depends on reaction in the exchange rate

• A larger euro depreciation would cushion the impact of tariffs on growth
• But it would make a larger impact on inflation
• If euro touches parity against the dollar, we wouldn’t lose as much in terms of competitiveness
• I guess we’ll land with rates somewhere around 2%
• Four more rate cuts is a meaningful scenario that I feel relatively comfortable with

Wunsch is being rather bold in his remarks here as he floats the thought of EUR/USD reaching parity. Then again, it’s not an otherworldly take as many analysts are also seeing that happen next year. Here’s some on that list:

• Deutsche Bank: EUR/USD could fall below parity, potentially reaching 0.95 or even lower
• BNP Paribas are forecasting EUR/USD to parity in 2025
• Rabobank look for EUR/USD to parity
• EUR/USD could test parity in 2025 before modest recovery – MUFG
• HSBC forecasts EUR/USD to 0.99 by the end of 2025
• Goldman Sachs expect EUR/USD under parity in scenario Trump wins US election

This article was written by Justin Low at www.forexlive.com.