What "fundamentals" does the IMF think control the values of currency pairs?
The International Monetary Fund says the US dollar is overvalued on
currency markets, while the euro, yen and pound were in line with
"The real effective exchange rates of Japan, the euro area, and the UK all appear broadly in line with medium-term fundamentals, while the US dollar is on the strong side of fundamentals," the IMF said in a report to the Group of 20 economic powers on Thursday.
The IMF noted recent government interventions in the foreign-exchange market had contributed to the imbalance, which has sparked fears of "currency wars" to protect exports amid the global economic recovery.
"While advanced economies have generally avoided intervening in
currency markets, some have intervened more recently to limit rapid
appreciations, contributing to the abovementioned tension on this
The IMF reiterated its view that China's currency, the yuan, remained "substantially undervalued".
The IMF prepared the report for a G20 meeting of financial ministers
and central bank governors in South Korea on October 22-23, in
preparation for a G20 summit in mid-November.