The Euro is trading at $1.2100/Euro. A US Basket of Goods costs $100 (in US) and 120 (in Europe). US Fed Reserve predicts 1.00% inflation in US next year. ECB predicts -0.50% inflation in the EU next year.

Part A: What is the expected differential between US and Eurozone inflation rates for the next year?

Part B: What is the real US/EU current Exchange rate? Is the US dollar under/overvalued? By how much?

Part C: Is this information likely to be useful in predicting where the nominal US US/EU exchange rate in one year?