• This chart shows the dynamics of the current EURUSD spot current with the OECD-Eurostat PPP (Purchasing Power Parity) rate, which is based on a theory that gives implied 'fair' exchange rates based on a relative price level of two countries.
  • It is interesting to see that EURUSD is still standing far below (15% undervalued) its 'fair value' of 1.4060 despite the recent depreciation of the US Dollar (since March 2020).
  • Even though some investors have criticized the PPP model (especially for the Euro), empirical studies have shown that exchange rates tend to converge towards their equilibrium rate (PPP) in the long run.
  • Can the Euro continue to appreciate against the USD if uncertainty rises?

Source: OECD. Bloomberg/MNI

EURUSD: Spot Rate vs. Purchasing Power Parity

Last updated at:Sep-19 19:41By: Yvan Berthoux
Oil Bullets+ 1
  • This chart shows the dynamics of the current EURUSD spot current with the OECD-Eurostat PPP (Purchasing Power Parity) rate, which is based on a theory that gives implied 'fair' exchange rates based on a relative price level of two countries.
  • It is interesting to see that EURUSD is still standing far below (15% undervalued) its 'fair value' of 1.4060 despite the recent depreciation of the US Dollar (since March 2020).
  • Even though some investors have criticized the PPP model (especially for the Euro), empirical studies have shown that exchange rates tend to converge towards their equilibrium rate (PPP) in the long run.
  • Can the Euro continue to appreciate against the USD if uncertainty rises?

Source: OECD. Bloomberg/MNI

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