EUR/USD kept rising. However, economists at ING expect the world’s most popular currency pair to struggle to enjoy further gains.

Stretched short-term valuation

In our short-term financial fair value model, EUR/USD overvaluation has exceeded 3.0% on the back of the pair’s unusual moves, an indication of how the FX market is pricing in a disinflationary risk premium into the Dollar (i.e. larger than what is factored in by rates and equities).

We suspect gains beyond the 1.1300 mark may prove to be unsustainable for now.