📝 EUR/USD Is Not Cheap On Real FX Valuation: ING

The Swiss franc remains obviously the most overvalued currency in the G10 space, while NOK, GBP, EUR and SEK are broadly in line with their medium-term fair value (less than 5% misvaluation). The $-bloc and JPY are instead quite undervalued against the dollar. EUR/USD is not cheap when medium-term economic fundamentals are taken into account. As shown below, it is once again mostly a terms of trade story. For EUR/USD fair value to significantly bounce back we’d need to see a recovery in the eurozone terms of trade: in other words, a significant cooling off in energy prices, returning to around the levels seen in the first half of 2021. We think this is unlikely to happen in the next year given the tectonic shift in geopolitical equilibriums. The BEER model results suggest – in our view – that any EUR/USD recovery in the coming quarters should be quite gradual, as economic fundamentals should not support a much stronger euro in the foreseeable future. We expect a return to 1.15 only towards the end of 2023. Incidentally, these results suggest the euro would not find much resistance in a potential move to parity over the coming months. - ING

*Report date: 05/23/22