The performance of the major currencies against the euro varied last month, but they remained strong against the US dollar throughout.
Both the pound and the yen still face the prospect of weaker exchange rates. While the pound is fairly valued or slightly overvalued, the yen is massively undervalued.
Both the Swedish krona and the Canadian dollar are undervalued against the US dollar, but are fairly valued relative to the euro. While Canada is working hard to reduce its dependence on the United States and is benefiting from its natural resources, Sweden is firmly anchored in the growing global economy. Alongside Switzerland, it has the lowest government debt of any major currency.
The Swiss franc is fairly valued against the euro but undervalued against the US dollar.
The Australian dollar is undervalued relative to its fundamentals. At the same time, however, it offers good prospects for increased revenue due to rising commodity prices.
For the time being, the difference in performance relative to the euro will remain unchanged.
USD price movements also significantly impact the relative value of major currencies against the euro. In the short term, I can see no strong driver pushing the USD in any particular direction. From a technical perspective, the USD is in a medium- to long-term downtrend and is fundamentally overvalued. However, as long as U.S. stock markets continue to perform strongly, the U.S.’s high deficits will not lead to a weakening of the USD because they are covered by capital inflows into portfolio investments.
The ongoing trend of rising long-term interest rates requires close monitoring.
The Yield on 30-Year US Treasury Bonds Has Risen Above 5%
High borrowing costs are holding back the real estate market, which continues to underperform. For many young Americans, buying a home is out of the question given the high prices and interest rates. The willingness to move is also significantly dampened because it is uncommon in the US to refinance mortgages. This leaves homeowners facing the dilemma of switching from 2% to 7% mortgages. The US government is reportedly working on a change to the non-transferability of mortgages. This could help to revitalise the real estate market.
However, it is not just the real estate market that is suffering. Interest rates are not rising because the Federal Reserve is raising them, but because we are witnessing a buyer’s strike driven by concerns over excessive debt, high inflation and repayment ability. This is also pushing up refinancing costs for companies, which will put pressure on their future profit growth. Since governments and companies are continuing to increase their debt and investments while stock valuations remain high, reaching a tipping point is inevitable, although the exact timing is unpredictable.
Consumer spending depends on the continued rise of the stock market. If they don’t, consumer spending will fall. A fall in stock prices would lead to a sharp decline in consumer spending because the savings rate is low and many U.S. consumers have very little cash on hand.
The markets are currently in a relatively stable equilibrium, with economic growth and stock markets on the rise. This situation is expected to continue for the time being.
