On Thursday, UBS released a report presenting a less extreme valuation of the US dollar compared to simple Purchasing Power Parity (PPP) models.
The firm’s preferred valuation metrics indicate the dollar is approximately 2.5% overvalued against the Federal Reserve’s narrow Trade-Weighted Index (TWI) and about 5.5% overvalued in the Dollar Index (DXY). This contrasts with the 20-25% overvaluation suggested by PPP models.
UBS’s assessment suggests that the strong performance of the dollar may continue, as the case for an imminent return to what is considered fair value is not as compelling. The firm’s adjusted PPP…
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