The Euro (EUR) continues to be approximately 2% undervalued against the US Dollar, despite a wave of optimism surrounding peace talks related to Ukraine. Analysts point to weak economic data from Germany and delays in fiscal stimulus as contributing factors to this ongoing undervaluation. According to Francesco Pesole, a foreign exchange analyst at ING, there is still a belief that the EUR/USD exchange rate could rebound above 1.160 in the near future.
Weak Economic Indicators Impact Euro
Recent data from the German Ifo Institute revealed a decline in business sentiment, with November figures showing deteriorating expectations, despite a slight uptick in current conditions. This presents a mixed picture, as optimism for fiscal stimulus appears to be waning. The 2025 budget indicates that any potential stimulus may be delayed until next year, which raises hopes for economic improvement in 2026. Pesole noted, “The Euro is yet to see any real benefit from the Ukraine peace talks, trading at a wide 2% undervaluation against the US Dollar.”
The current situation reflects broader trends, as the US Dollar is also facing challenges, with its overvaluation likely comparable, if not greater, across the G10 currencies. Analysts suggest that trading strategies might focus more on pairing the Euro with the Swiss Franc (EUR/CHF) as a more favorable option amid the ongoing discussions about peace in Ukraine.
Market Reactions and Future Predictions
The Euro’s performance in the market has been lackluster, with EUR/USD experiencing a slight decline of around 1% in the previous week. Nevertheless, it managed to stabilize above 1.1500. The technical outlook for the pair indicates that while bearish trends persist, the Euro is struggling to gain momentum for a significant rebound.
As global economic conditions continue to evolve, market participants remain vigilant. The focus is now shifting to upcoming macroeconomic data releases from the United States, which could influence the direction of the Euro and the Dollar.
In summary, the Euro finds itself in a challenging position, hindered by economic data and a lack of immediate positive outcomes from geopolitical developments. However, optimism about a future recovery remains, with analysts eyeing a potential return to levels above 1.160 against the US Dollar in the coming weeks.
