Improved economic fundamentals outside the US have coincided with the dollar’s sharp fall since last September, narrowing the greenback’s substantial overvaluation. But we still think that it remains somewhat stronger than warranted by fundamentals. While we expect the dollar’s “fair value” to continue to edge lower over the next couple of years, we think recessions in advanced economies will mean that “safe-haven” demand drives the dollar higher in the near term. In other words, we think it will stay somewhat overvalued through the remainder of this year.
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