IMF sees US dollar overvalued by 12%

Kuwait - The US dollar was overvalued by 6% to 12%, given the short-term economic fundamentals, with which the euro, Japanese yen (JPY) and Chinese yuan (CNY) were broadly in line, the International Monetary Fund (IMF) said.

Although the IMF disagrees with the use of import tariffs to address trade imbalances, its assessment that the greenback was overvalued would probably give President Donald Trump more reason for his complaints that the strong dollar was curtailing US exports.

Trump lashed out at European and Chinese policies that resulted in what he described as the devaluation of the respective currencies against the greenback.

Current account surpluses remained in the Eurozone and other developed economies, whereas deficits remained centred in the US, the UK and some emerging market economies, the IMF said in its annual External Sector Report.

While the euro’s valuation was seen as appropriate for the Eurozone as a whole, the real effective exchange rate against the US dollar was 8% to 18% lower than Germany’s fundamentals, considering high current account surplus.

In addition, the IMF assessed the yuan’s valuation was broadly matching China’s fundamentals, but pointed to wide divergences with policies from an 11.5% undervaluation to an 8.5% overvaluation due to anxieties regarding Beijing’s policy outlook.

Previously, the fund warned that the trade conflict between Washington and Beijing could cost the world’s economy around $455 billion next year.

Latest trade policy measures dragged global trade flows, ate into business confidence, disrupting investment, but failed to reverse external imbalances, according to the annual report.

Instead of retaliatory tariffs, the IMF urged ountries with surpluses and gaps to seek to re-ignite liberalisation efforts, and consolidate the rules-based multilateral trading system in place for the past 75 years.