According to BMI, currencies in much of the emerging world, including Russia, China, and India, are too cheap relative to the dollar. The yen is more than 19% undervalued now.
The Economist is out with their Big Mac Index of currency valuations. The Big Mac index looks at foreign-exchange rates based on the theory of purchasing-power parity (PPP), the notion prices/exchange rates should adjust over the long run, so tradable goods cost the same across countries. Here’s their conclusion based on the latest data,
The Big Mac index suggests that currencies are particularly overvalued in Norway, Switzerland and Brazil (see chart). The continuing strength of the real is a big source of irritation to Brazil’s finance minister, Guido Mantega, who first trumpeted the phrase “currency wars” in 2010. Brazil battled back by introducing capital controls in the form of taxes on foreign purchases of Brazilian securities, but the currency remains overvalued. In December Brazil notched a record current-account deficit as its exports tumbled, contributing to a slide in the economy’s growth prospects. Switzerland handled its overcooked currency by pegging…
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