EUR/USD and GBP/USD moved into deeply undervalued territory, limiting downside risks – Crédit Agricole

EUR/USD and GBP/USD have once again moved into deeply undervalued territory. Therefore, economists at Crédit Agricole CIB Research see limited scope for further downside for both pairs in the near-term.

Short-term rate spreads seemed to be moving in the opposite direction

"The USD has been on a rampage with the beleaguered European currencies once again leading the losses. At the same time, however, traditional measures of the relative central bank policy outlook like short-term rate spreads seemed to be moving in the opposite direction, in part because of growing evidence of mounting inflation pressure in Europe as well as hawkish signals from both the ECB and the BoE.” 

“Our measures of short-term fair value for both EUR/USD and GBP/USD that incorporate both short-term rate spreads and risk aversion metrics already seem to suggest that the recent sell-off of the two USD-crosses have once again moved into deeply undervalued territory. This much should limit the downside risks for EUR/USD and GBP/USD in the near-term.”