International Monetary Fund (IMF) said Wednesday the USD is overvalued by 6% to 12%, based on near-term economic fundamentals, while the EUR, the JPY, and China’s RMB Yuan were seen as broadly in line with fundamentals.
The IMF has been at odds with President Trump over his use of tariffs to resolve trade imbalances, but its assessment that the USD is overvalued is likely to give President Trump more ammo for his complaints that the Buck’ strength is hampering US exports.
President Trump has railed against European and Chinese policies that lead to what he calls a devaluation of the EUR and other currencies Vs USD.
The Fund’s External Sector Report, an annual assessment of currencies and external surpluses and deficits of major economies, showed that current account surpluses remained centered in the Euroarea and other advanced economies such as Singapore, while deficits remained persistent in the United States, Britain and some emerging market economies.
The report said net creditor positions had increased again, and were now at a historical peak of about 20% of GDP or about 4X the level seen in the early 1990’s. Net debtor positions were at a similar level.
The Fund said recent trade policy actions were weighing on global trade flows, eroding confidence, and disrupting investment. But they had done nothing to reverse external imbalances thus far.
Instead of tit-for-tat tariffs, surplus and deficit countries should work to revive liberalization efforts and strengthen the rules-based multilateral trading system that has been in effect for the past 75 years, the IMF said.
“It is imperative that all countries avoid policies that distort trade,” IMF Chief Economist Gita Gopinath told reporters. “Higher tariffs have been associated with increased prices for consumers and are weighing on global trade, investment and growth, including by eroding confidence and disrupting global supply chains.”
Ms. Gopinath said the IMF had looked carefully at exchange rates, but saw no evidence that changes had much impact on trade flows, particularly in countries that invoiced trade in USD.
“Structural changes, such as improving access to credit and better transportation infrastructure, could be more useful in the short term“, she said.