The euro (EUR) remains undervalued against the US dollar (USD) despite calm developments in Ukraine, while weak German business sentiment points to limited near-term upside, although EUR/USD could climb above 1.160 in the coming weeks, says ING’s FX analyst Francesco Pesolle.
German business sentiment declined in November
“Europe has yet to receive any real benefits from the Ukraine peace talks, and according to our models, as of this morning it is trading at a 2% undervaluation against the USD. This is not specific to the euro, as the overvaluation of the dollar is similar to that of the G10, if not higher.”
“On the data side, we took a look at the German IFO yesterday. The findings were not very positive, as German business sentiment deteriorated in November. Expectations weakened despite a modest improvement in current conditions, reflecting fading optimism after earlier fiscal stimulus expectations. Lower spending in the 2025 budget suggests the stimulus may only come next year, which provides some hope for 2026.”
“EUR/CHF may prove to be a more preferred way to satisfy Ukraine’s peace hopes, but a devaluation of EUR/USD cannot be ruled out, and a return above 1.160 remains our baseline in the near term.”
