Better-than-expected economic data from the US and a strong rhetoric by the chief economist and members of the Governing Council of the ECB will keep the euro undervalued.
The Chinese market turmoil led to speculations that the US Federal Reserve might postpone its first rate hike into 2016, arguing for a less divergent interest-rate path between the US and the eurozone and pushing the euro higher.
We believe that a US rate hike later this year is still in the cards. Moreover, recent rhetoric by the ECB underpins that the ECB has a strong bias to keep the euro weak. We revise our EUR/USD forecast slightly downwards to 1.14 and 1.18 in three and twelve months, respectively.
Stephanie Lindeck is economist at Julius Baer