How strong is the euro?

The euro does not appear to be significantly overvalued despite the ECB’s concerns about its strength. The real effective exchange rate (REER) is equal to its ten-year average and only slightly above its ten-year trend. The euro-zone’s current account surplus has also grown significantly over the last few years, suggesting that, at the aggregate level at least, the region is competitive internationally. That being said, we still expect the euro to fall.