This can be witnessed through the so-called Big-Mac Index. The index is based on the idea of purchasing-power parity, which says currencies should trade at the rate that makes the price of goods the same in each country, reports The Economist.
If the price of a Big Mac translated into dollars is above $3.54, its cost in America, the currency is dear; if it is below that benchmark, it is cheap. So far, the yen has gained fair ground, the pound is looking stronger than last Summer, and the euro is over-valued, but less than last smmer.
The Japanese yen is holding strong to a 13-and-a-half-year peak hit against the dollar and a seven-year high versus the euro the previous day. The strength is rooted from investors uncertainty about the global banking crisis. The British sterling held right above its 23-year low against the U.S. dollar, without making any gains, reports Shinichi Saoshiro for Forbes.
Is the road to depreciation ending for the Russian ruble? The quick and sharp downturn of this currency caught many by surprise. Senior officials have suggested that the Russian ruble may be coming back on the road to health, as the currency rallied for a third day in a row as of Thursday, reports Vidya Ram for Forbes.
This short-term rally is spurred by the temporary increase in demand for the ruble because of an upcoming VAT payment day. Corporates for whom payment is due on this date had expected the currency to depreciate, so they had not been keen to convert their dollar deposits until now.
- CurrencyShares Russian Ruble Trust (XRU): down 8.6% year-to-date
- CurrencyShares Japanese Yen Trust (FXY): up 1.2% year-to-date
- PowerShares DB US Dollar Index Bullish (UUP): up 5% year-to-date
Read the disclosure, as Tom Lydon is a board member of Rydex Funds.
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