Analysts at Societe Generale (SG) are out with their take on the EUR/USD pair, noting that the Euro still has some room to rally.
“We think old-fashioned purchasing power parity is a useful building block of where ‘normal’ might be
Suggests that the euro still has some room to rally
In the past 10 years, the EUR/USD spot rate has averaged 1.29
The OECD’s estimate of the EUR/USD PPP fair value has averaged 1.29 too
That’s just a coincidence that contrasts with some of the other currencies (the USD/JPY and EUR/CHF have both fallen far below PPP on average over the last 10, 20 or even 30 years, for example).
The Eurozone, like Japan and Switzerland, has a big current account surplus, but it also comprises a lot of different countries, which affects the FX valuation…. still think that the EUR/USD PPP level (just under 1.34 at the moment) is a reasonable guess of where the long-term EUR/USD average might be going forward.“