The euro may have taken a beating from a combination of a strong dollar and fears over Europe's political future, but now is the time to go long, a UBS analyst told CNBC on Thursday.
The euro has tumbled against the dollar in the wake of Donald Trump's surprise election as U.S. president, falling as low as $1.0339 this month, from levels above $1.11 in early November. The dollar index, which measures the greenback against a basket of currencies, surged to a 14-year high after the election on hopes for fiscal stimulus and greater inflation. On Thursday at 1:52 p.m. HK/SIN, the euro was fetching $1.0752.
Tan Teck Leng, a foreign-exchange analyst at UBS, told CNBC's "Street Signs" on Thursday, that he expected the euro would rise to $1.20 on a 12-month basis.
"I think there is a big mispricing on the euro-dollar right now because the market is actually happily still using the euro as a funding currency for now because Draghi is extremely dovish," Tan said.
Last week, European Central Bank (ECB) President Mario Draghi said rising inflation on the continent hadn't yet shown a convincing trend for the central bank to change course.
At its December meeting, the ECB had said it would extend its generous bond-buying program at a reduced pace of purchases of 60 billion euros ($64.46 billion) a month from April, down from 80 billion euros.
But Tan expected that once the French elections in May were past, Draghi "has the ability to be a lot more hawkish."
Tan pointed to medium-term inflation expectations, which had risen to 1.7 percent, not too far from the ECB's 2 percent target.