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Another gap up for Stoxx600

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  • The chart below ranks the major G9 and CEE currencies based on their percentage difference between the current spot rate (vs. the US Dollar) and their 'fair' value, which we define using a Behavioral Equilibrium Exchange Rate (BEER) model (using terms of trade, inflation and 10y interest rate differentials as explanatory variables).
  • Despite their strong recovery since March 2020, the British pound and the Aussie are the most undervalued currencies, -11.7% and -11.2% according to our model. It is important to emphasize that both currencies are considered 'risk-on assets' that tend to appreciate when volatility eases.
  • HUF also remains significantly undervalued (-10.4%) despite the strong momentum we saw in April and May.
  • On the other hand, the Swiss Franc is the most expensive currency, +8.6% against USD (also strongly overvalued using the PPP approach).

Source: Bloomberg/MNI