The euro is undervalued but only moderately, relative unit labor costs are our favoured measure of a country's competitive position and on this criterion EUR is undervalued, but only by around 10% compared to its long-run average--a small deviation compared to the 20%+ undervaluation in the early-2000s or the peak overvaluation pre-global financial crisis in 2008 (also around 20%). Real exchange rates based on relative inflation rates show a similar story, with EUR about 5% undervalued compared to 15% undervalued in the early-2000s, he says. This mild undervaluation gives reason to push back against "very bullish" longer term EUR/USD consensus forecasts. - RBC FX Strategy
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