Euro-Dollar Now 1.0% Undervalued: ING

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ING Bank's foreign exchange strategy team say the Euro is now 1.0% undervalued relative to the Dollar but a recovery is not necessarily close at hand.

"We currently estimate EUR/USD’s fair value at 1.0650, meaning that the pair is around 1% undervalued to its market drivers, below its 1.5 standard deviation and does not suggest an imminent upward correction," says Francesco Pesole, FX Strategist at ING.

The Euro to Dollar exchange rate has fallen 6.5% to 1.0550 having seen a 2023 peak at 1.1275, reached in July.

"EUR/USD can slip back below 1.0500 even in the event of a consensus read in US payrolls today," says Pesole.

The Dollar's appreciation has stalled this week as long-dated bond yields pull back from recent highs and oil prices drop sharply and ease concerns of another commodity-lead inflationary impulse.

"However, with the interest rate outlook still uncertain, today's important U.S. labour market data could have a significant impact if they stray significantly from expectations," says Rhys Herbert, an economist at Lloyds Bank.

The labour market report is released at 13:30 BST with the consensus looking for a 170K reading, down on August's 187K. An average hourly earnings increase of 0.3% is expected while the unemployment rate is expected to be at 3.7%.

ING looks for an on-consensus reading to consolidate the 'higher for longer' expectation for U.S. interest rates, a key driver of the Dollar's recent rally.

Meanwhile, the Eurozone's economic calendar is quiet and European Central Bank (ECB) speakers are failing to impact markets.

Villeroy sounded dovish yesterday, saying he hopes hikes are over, and we’ll hear from Klaas Knot, Bostjan Vasle, Boris Vujcic and Peter Kazimir today.