Editor’s note: The pressure is building for US dollar realignment to a trade balancing exchange rate.
- President Donald Trump's calls for a weaker US dollar have received fresh support from the IMF, which says the currency is between 6% and 12% overvalued.
- IMF analysts also said the euro is undervalued by 8% to 18% for the German economy, while the Chinese yuan appears to be fairly valued but there are "large uncertainties" around the currency.
- "Whilst Trump has never been the biggest fan of multilateral institutions such as the IMF, he may very well be now!" one analyst said.
[Theron Mohamed | July 18, 2019 | Business Insider]
President Donald Trump thinks the US dollar is too strong. The International Monetary Fund agrees with him.
Trump has reportedly asked White House aides to explore ways to weaken the dollar, making US exports more attractive and boosting economic growth. He has also accused Germany, China, and other trading partners of intervening in foreign-exchange markets and undervaluing their currencies in order to undercut American producers and export cheap goods to the US.
"China and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA," Trump tweeted earlier this month. "We should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games - as they have for many years!"
The IMF provided fresh ammunition for the president in its latest External Sector Report. Its analysts determined the dollar's real effective exchange rate is between 6% and 12% too high based on its economic fundamentals, while the euro is undervalued by 8% to 18% for the German economy given its high current-account surplus. They estimated the Chinese yuan was fairly valued, but warned that "large uncertainties" in outlook and portfolio allocation could mean the currency is anywhere from 11.5% undervalued to 8.5% overvalued.
"Whilst Trump has never been the biggest fan of multilateral institutions such as the IMF, he may very well be now!" said Stefan Koopman, senior market economist at Rabobank, in a research note. "The report strengthens his case that the Fed should cut rates further to push the dollar down; the icing on the cake is that it labels the "German" euro as significantly undervalued!
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