Monday, November 9, 2009

USD is the Source of Carry Trades, And Why the IMF Says The USD is Still Overvalued

The G20 met in St. Andrews this weekend. The IMF issued a report saying that the US dollar is still on the strong side of appreciation, which Bloomberg interprets as being still overvalued.

This is what the IMF said:

The interpretation is based on the following chart:

It shows the appreciation of the USD (left side) between Jun 08 and Feb 09, and the subsequent depreciation (right side) between Mar 09 and Sep 09.

With the exception Argentina, all other currencies have recovered.

Based on this chart, the red bars are bigger that the blue bars, so then the USD is on the strong side of appreciation. This is a very small view of how currrencies work.

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