US Treasury Says US Dollar 16.5% Above 20 Year Average On Real Effective Basis

Published on Nov 08, 2023 12:31

According to a latest update from the US Treasury, the nominal trade-weighted dollar weakened 0.8% from end-June 2022 to end-June 2023 as foreign currency movements continued to reflect mixed influences regarding global inflation, the expected pace of monetary policy tightening, and other factors over this period. The dollar depreciated broadly over this period against advanced economy and emerging market economy currencies, weakening by 0.9 and 0.7%, respectively.

Despite bouts of financial market stress in early 2023 and amid further market expectations of easing financial conditions, the dollar weakened further over the first half of 2023, depreciating by 1.2%. During this time, dollar performance was mixed across major trading partners� currencies. The dollar weakened most notably against the Mexican peso and the Brazilian real, depreciating by 12.1% against the peso and 9.0% against the real. Meanwhile, the dollar appreciated against the yen by 9.6%, the Malaysian ringgit by 6.0%, and the Chinese renminbi by 5.1%.

More recently, the dollar has rebounded, appreciating 2.4% between end-June and end-September, leaving it 1.1% stronger on net since the beginning of the year. While the dollar has strengthened against almost all major trading partners in the third quarter of 2023, dollar appreciation has been more pronounced against advanced economy currencies. On a real effective basis, the dollar appreciated 0.7% from end-June 2022 to end- September 2023 and remained 16.5% above its 20-year average. In its most recent assessment, the IMF continued to judge the dollar to be overvalued on a real effective exchange rate basis.