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Swiss franc (CHF) is currently 60% overvalued to USD as measured by PPP, visit bankintroductions.com currency index for currency info.
Over the last 5 months, the CHF currency valuation has fallen from the 90 percent overvaluation to the USD to the current 60 percent valuation as measured by purchasing power parity. This is a significant haircut in valuation for a currency widely recognized for its historical safe haven mystique.
Thursday, December 29, 2011
Thursday, November 3, 2011
Spectacular Rise and Fall of the Swiss Franc (CHF)
Over the last few months, the Swiss franc valuation has taken a wild ride at the amusement park. During the height of the Euro crisis in August 2011, their was a significant currency hot money move towards safe haven currencies whereby the Swiss franc was one of the biggest beneficiaries. The CHF peaked at 1.37 USD to buy 1 CHF, today this valuation sits closer to 1.12 USD.
The party came to an end when the Swiss authorities in September 2011 capped the CHF valuation to a level of 1.2 CHF to the Euro (EUR) which resulted in a spectacular 25 cent US correction. But is the hangover from the party over? Purchasing power parity suggest the CHF is still the most overvalued industrialized currency in the world today in relation to the USD with a 72% overvaluation for the CHF.
The Swiss National Bank, the country's central bank has signaled strong intentions to prevent another hot money run on the CHF as a fast dramatic rise in the Swiss franc greatly harms Swiss exports. With Swiss interest rates close to zero and deposit accounts paying 0.5% to 2% for various terms, one may want to take a look at the CHF currency moves as it has shown tremendous price volatility.
The party came to an end when the Swiss authorities in September 2011 capped the CHF valuation to a level of 1.2 CHF to the Euro (EUR) which resulted in a spectacular 25 cent US correction. But is the hangover from the party over? Purchasing power parity suggest the CHF is still the most overvalued industrialized currency in the world today in relation to the USD with a 72% overvaluation for the CHF.
The Swiss National Bank, the country's central bank has signaled strong intentions to prevent another hot money run on the CHF as a fast dramatic rise in the Swiss franc greatly harms Swiss exports. With Swiss interest rates close to zero and deposit accounts paying 0.5% to 2% for various terms, one may want to take a look at the CHF currency moves as it has shown tremendous price volatility.
Tuesday, June 7, 2011
Update - Purchasing Power Parity on Selective Currencies
As of June 6, 2011, here is an eye opening snapshot on the state of some major industrialized currencies:
As measured by purchasing power parity in relation to the US dollar (USD)
Overvaluation exists for the following:
Swiss franc (CHF) at 81 percent
Norwegian krone (NOK) at 70 percent
Australian dollar (AUD) at 64 percent
Swedish krone (SEK) at 45 percent
Japanese yen (JPY) at 38 percent
Currency undervaluation:
Russian ruble is 42 percent undervalued to the USD
Mexican peso at 33 percent
So, if you are an American tourist, you may want to look at Mexico and Russia as countries to visit as many other countries even including the Eurozone is pricey at today's currency valuations.
As measured by purchasing power parity in relation to the US dollar (USD)
Overvaluation exists for the following:
Swiss franc (CHF) at 81 percent
Norwegian krone (NOK) at 70 percent
Australian dollar (AUD) at 64 percent
Swedish krone (SEK) at 45 percent
Japanese yen (JPY) at 38 percent
Currency undervaluation:
Russian ruble is 42 percent undervalued to the USD
Mexican peso at 33 percent
So, if you are an American tourist, you may want to look at Mexico and Russia as countries to visit as many other countries even including the Eurozone is pricey at today's currency valuations.
Friday, February 25, 2011
The Impact of Interest Rates on Currency Rates
We permission from a very helpful currency portal, we post the following compliments of the following web site: http://ratesofcurrency.co.uk
The Advantages of Currency Trading
People usually carry credit cards or prepaid cards but still there is a dire need to stack up some cash in the wallet. In case the ATM is not working or In case there are some technical problems in accessing the respective card and so on, there are many unplanned things which may jeopardize the comforts and luxuries of your travel .
While exchanging the currency you may be lured by the signs like "Commission free exchange" which in many cases is nothing but a sweetener . You may well be manipulated in ways that may provide you with not so good rate. You can do two things, either you do not go to these agencies or if you go then ensure that you are well aware of the existing value of your currency in the concerned country which can help in negotiating. It is feasible to look for those companies that charge any commission as they may give you a rate that provide best value for the cash .
Many fundamental factors determine the supply and demand for a particular currency and its value against other currencies . Among these factors are interest rates. Central banks are the institutions that set the base rates in a country and change their levels to streamline the development of the local economy. Increasing the interest rate will result will in raising value of the nation’s currency while lowering interest rates should have the opposite effect, respectively .
Financial dictionaries describe currency depreciation as a process when a currency loses its value against another currency or basket of currencies. In such cases, more units of a local currency are needed to purchase the foreign currency i.e. if one British pound was able to purchase two U.S. dollars on a few years ago and now you receive 1.6 U.S. dollars for one British pound, then the pound has depreciated. Depreciation is a process driven by market forces and all fluctuations of currency rates reflect the present market conditions, forming the market value of a particular currency pair .
The currency depreciation can effect positively the overall economic development, though. It boosts competitiveness through lower export costs and secures more income from exported goods in a similar way devaluation does . On the contrary, depreciation makes imports more expensive and discourages purchases of imported goods stimulating demand for domestically manufactured goods. The governments worldwide influence appreciation and depreciation utilising the powerful tool of the base interest rates, which are usually set by the country's central bank and this tool is often used to intentionally depreciate the currency rates to encourage exports .
THE ABOVE POST IS COMPLIMENTS OF http://ratesofcurrency.co.uk
While exchanging the currency you may be lured by the signs like "Commission free exchange" which in many cases is nothing but a sweetener . You may well be manipulated in ways that may provide you with not so good rate. You can do two things, either you do not go to these agencies or if you go then ensure that you are well aware of the existing value of your currency in the concerned country which can help in negotiating. It is feasible to look for those companies that charge any commission as they may give you a rate that provide best value for the cash .
Many fundamental factors determine the supply and demand for a particular currency and its value against other currencies . Among these factors are interest rates. Central banks are the institutions that set the base rates in a country and change their levels to streamline the development of the local economy. Increasing the interest rate will result will in raising value of the nation’s currency while lowering interest rates should have the opposite effect, respectively .
Financial dictionaries describe currency depreciation as a process when a currency loses its value against another currency or basket of currencies. In such cases, more units of a local currency are needed to purchase the foreign currency i.e. if one British pound was able to purchase two U.S. dollars on a few years ago and now you receive 1.6 U.S. dollars for one British pound, then the pound has depreciated. Depreciation is a process driven by market forces and all fluctuations of currency rates reflect the present market conditions, forming the market value of a particular currency pair .
The currency depreciation can effect positively the overall economic development, though. It boosts competitiveness through lower export costs and secures more income from exported goods in a similar way devaluation does . On the contrary, depreciation makes imports more expensive and discourages purchases of imported goods stimulating demand for domestically manufactured goods. The governments worldwide influence appreciation and depreciation utilising the powerful tool of the base interest rates, which are usually set by the country's central bank and this tool is often used to intentionally depreciate the currency rates to encourage exports .
THE ABOVE POST IS COMPLIMENTS OF http://ratesofcurrency.co.uk
Wednesday, December 29, 2010
Swiss franc (CHF) overvaluation
As of today's entry, it now takes a $1.05 USD to buy one Swiss franc, an amazing trajectory skyward for the Swiss franc where it was only back in year 2005 where it traded as low as 77 US cents for one CHF. If one looks at purchasing power parity, the charts show the Swiss franc as the world's most overvalued currency in the industrialized world now at 70 percent overvaluation to the US-dollar (USD). Beautiful Swiss scenery, the lure of Swiss chocolates, clocks and private banking may not be enough to prevent the CHF experience a modest currency correction in 2011.
For more information about currencies and global banking, please visit BankIntroductions.com
For more information about currencies and global banking, please visit BankIntroductions.com
Tuesday, October 19, 2010
Currency Valuations as Suggested by Purchasing Power Parity
The concept of purchasing power parity (PPP) suggests that a country's exchange rate in relation to other countries' currency exchange valuations are in equilibrium when their actual purchasing power are the same in each of the two compared countries. Hence, the exchange rate between two countries in theory should equal the ratio of the two countries' price level for a fixed basket of products / goods & services.The Economist magazine (UK based) publishes a well known Burger Index comparing the price of a McDonald's Big Mac in various countries using the price of a United States made Big Mac as the base value. Recently, purchasing power parity has made some candid observations about currency valuations:
Switzerland's franc (CHF) is heavily overvalued in relation to the US dollar
The Chinese yuan renminbi is undervalued. If you happen to find yourself in China and hungry, a Chinese made Big Mac will be very affordable especially if you are traveling from Europe.
Currencies that appear to be significantly overvalued to the USD are Denmark, Norway, Sweden, Canada by upwards of 15 to 20% and Japan.
Undervalued currencies include Russia, many Asian countries such as the Philippines, South Korea, Hong Kong / China, Malaysia, etc. Surprisingly, countries like Poland, Mexico, Hungry and Turkey are other countries that PPP suggests that their currencies undervalued.
Commodity currencies such as Brazil, Australia, New Zealand, Canada appear to be headed for a correction. Our forecasts at BankIntroductions.com calls for a short term reversal in valuation for the USD as it has had a difficult three months with expected QE2 on the horizon this November 2010. In our view, it seems the market has already priced this in the USD currency valuation and the market may rally the USD on the actual day of event of quantitative easing round number two. It is the reverse to what logic suggests.
Sort of like buy on mystery, sell on the news!
The Euroland euro (EUR) at this time also looks a little frothy as they have significant economic challenges of their own including member countries Greece, Portugal and Spain experiencing economic headwinds. France is in the midst of labor revolt. This euro overvaluation is confirmed by PPP with a 20% overvaluation rating for EUR in relation to the USD.
Interesting times in the world of currencies. Our short term bet is to hold USD; gold bullion may have a correction of upwards of $200 USD an ounce over the next few months.
Happy speculating this Halloween season!
Switzerland's franc (CHF) is heavily overvalued in relation to the US dollar
The Chinese yuan renminbi is undervalued. If you happen to find yourself in China and hungry, a Chinese made Big Mac will be very affordable especially if you are traveling from Europe.
Currencies that appear to be significantly overvalued to the USD are Denmark, Norway, Sweden, Canada by upwards of 15 to 20% and Japan.
Undervalued currencies include Russia, many Asian countries such as the Philippines, South Korea, Hong Kong / China, Malaysia, etc. Surprisingly, countries like Poland, Mexico, Hungry and Turkey are other countries that PPP suggests that their currencies undervalued.
Commodity currencies such as Brazil, Australia, New Zealand, Canada appear to be headed for a correction. Our forecasts at BankIntroductions.com calls for a short term reversal in valuation for the USD as it has had a difficult three months with expected QE2 on the horizon this November 2010. In our view, it seems the market has already priced this in the USD currency valuation and the market may rally the USD on the actual day of event of quantitative easing round number two. It is the reverse to what logic suggests.
Sort of like buy on mystery, sell on the news!
The Euroland euro (EUR) at this time also looks a little frothy as they have significant economic challenges of their own including member countries Greece, Portugal and Spain experiencing economic headwinds. France is in the midst of labor revolt. This euro overvaluation is confirmed by PPP with a 20% overvaluation rating for EUR in relation to the USD.
Interesting times in the world of currencies. Our short term bet is to hold USD; gold bullion may have a correction of upwards of $200 USD an ounce over the next few months.
Happy speculating this Halloween season!
Saturday, May 8, 2010
Euro Currency Zone to Downsize?
The Euroland euro common currency zone is experiencing growing pains. The value of the Euro currency (EUR) has declined from the 1.50 USD to 1 EUR level one year ago to hitting the 1.27 USD level last week. Why the decline?
Greece and its weak country sisters of Spain and Portugal are in the midst of a debt economic crisis. Spain itself remains in a depression with 20 percent unemployment.
And of course, the natural level of purchasing power parity suggesting a 1.20 USD to 1 EUR is the current natural trading level.
The idea of Germany bailing out and subsidizing the Greeks does not sit to well with many Germans. Many in Greece particularly in the public sector have generous benifits and lofty wages. A bail out is a short term band aid solution but it will not solve the problem. Greece's total debt load is exploding as its fiscal shortfall estimated at 14 percent of GDP. If a proposed bailout from Germany takes hold, Greece's total debt to GDP will rise upwards to 150 percent of GDP which is unsustainable.
The concept of the euro and a common currency makes sense if trade between one or more countries is extensive and if they have similar living standards and GDP per captia output. With Greece, they should never have been permitted entry into the euro zone in the first place. At least not now, perhaps in 20 years? Their economy is inefficient and not productive.
The choice for Greece is simple. Either roll back wages for public servants as they did in Latvia. That is, devalue the cost structure if they wish to remain in euro wage purchasing power parity while promoting tax and trade policies to boost foreign direct investment. The goal would be to increase national wealth via private sector investment. Or, the other option is to leave the euro zone and return the Greek drachma as national currency. The drachma will accordingly devalue in relation to the euro and public servants can be paid in local currency without a nominal pay cut.
Tough choices are ahead for Greece, Spain and Portugal. In our view, the euro will survive but not before growing pains are addressed. The EUR currency zone grew to quickly, too many countries too fast. The zone should downsize, stabilize and then gradually propel forward in the years ahead as new prospective member countries be in a stronger economic position for potential membership from the outset.
Greece and its weak country sisters of Spain and Portugal are in the midst of a debt economic crisis. Spain itself remains in a depression with 20 percent unemployment.
And of course, the natural level of purchasing power parity suggesting a 1.20 USD to 1 EUR is the current natural trading level.
The idea of Germany bailing out and subsidizing the Greeks does not sit to well with many Germans. Many in Greece particularly in the public sector have generous benifits and lofty wages. A bail out is a short term band aid solution but it will not solve the problem. Greece's total debt load is exploding as its fiscal shortfall estimated at 14 percent of GDP. If a proposed bailout from Germany takes hold, Greece's total debt to GDP will rise upwards to 150 percent of GDP which is unsustainable.
The concept of the euro and a common currency makes sense if trade between one or more countries is extensive and if they have similar living standards and GDP per captia output. With Greece, they should never have been permitted entry into the euro zone in the first place. At least not now, perhaps in 20 years? Their economy is inefficient and not productive.
The choice for Greece is simple. Either roll back wages for public servants as they did in Latvia. That is, devalue the cost structure if they wish to remain in euro wage purchasing power parity while promoting tax and trade policies to boost foreign direct investment. The goal would be to increase national wealth via private sector investment. Or, the other option is to leave the euro zone and return the Greek drachma as national currency. The drachma will accordingly devalue in relation to the euro and public servants can be paid in local currency without a nominal pay cut.
Tough choices are ahead for Greece, Spain and Portugal. In our view, the euro will survive but not before growing pains are addressed. The EUR currency zone grew to quickly, too many countries too fast. The zone should downsize, stabilize and then gradually propel forward in the years ahead as new prospective member countries be in a stronger economic position for potential membership from the outset.
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