Investing.com – The US dollar has risen sharply since the US presidential election, from an already high level, and Bank of America Securities now sees the currency priced to perfection.
In real terms, BoA estimated that the dollar ended at a 55-year high in 2024, following the longest uptrend in recent decades, which began in mid-2011.
“The USD has also reached extreme levels in nominal terms. Using the broad BIS NEER (nominal effective exchange rate) index, the USD is the strongest in the past 30 years, when the time series began,” BoA Securities analysts said in a Jan. 8 note.
The dollar appears overvalued by 18.5%, the highest level in the past 30 years, except when it became overvalued by 19% during the energy shocks caused by the war in Ukraine in 2022, the bank said.
Its overvaluation has risen by about 6.4% since the end of the third quarter of last year, largely due to the US elections. By comparison, the economy was only overvalued by 9.4% at the end of 2016, after Trump won his first US election.
Looking at the G10 equilibrium estimates, the USD clearly stands out as the most overvalued – followed by the CHF, with the JPY and the Scandies the most undervalued.
“We expect the USD to remain strong in the near term thanks to US inflation policies, especially rates, but to weaken later this year as these policies take a toll on the US economy, while the rest of the world reacts. Policy uncertainty makes our baseline subject to significant risks,” BoA Securities said.
