Currency exchange rate assumptions
Please note that our 2020 Long-Term Capital Market Assumptions were originally calculated as of September 30, 2019 and published in November 2019, and thus did not reflect recent extreme price moves in many asset markets resulting from the ongoing COVID-19 disruption. Please refer to the Executive Summary page to discover our updated assumptions as of March 31, 2020. Please reach out to firstname.lastname@example.org with any questions.
U.S. dollar remains structurally overvalued but awaiting cyclical catalyst
Our long-term currency assumptions generally call for a greater appreciation of major currencies vs. the USD than forecasted last year, in both nominal and (by a smaller magnitude) real exchange rate terms, driven by:
- The appreciation of the USD over the past year vs. most currencies
- An increase in the expected inflation differential between the U.S. and most other countries as other central banks undershoot their inflation goals by a wider margin than the Federal Reserve
At present, major currencies’ deviations from fair value, on a trade-weighted basis, are quite limited, with the exception of the USD.
Broad-based USD weakness is required to align exchange rates with fundamental valuations
ASSUMPTIONS FOR SELECTED CHANGES IN CURRENCY EXCHANGE RATES VS. THE USD, NOMINAL AND REAL