Dollar Is Overvalued

The US dollar is the worst performing G10 currency this year, down 8% versus its major peers. But it’s still expensive relative to its history, according to Bank of America Merrill Lynch, Business Insider reported. “The currency remains overvalued by about 10% compared with its long-term equilibrium and about 12% above its 20-year average in real effective term,” said Athanasios Vamvakidis, the global head of G10 FX strategy, in a note on Tuesday. A combination of tax reform and stronger economic data, or even just one of the two, would be sufficient to stoke the dollar, Vamvakidis said. “Both remain our baseline assumptions, although with substantial risks, particularly on the chances for tax reform,” he added. But that’s not likely to stop the greenback from grinding higher in the near-term. Vamvakidis forecast that one euro would weaken to be worth $1.08 by the end of the year, down from around 1.168 on Tuesday.