Is the Lack of Volatility a Sign that the USD is Fairly Valued?

The forex market has been relatively calm over the past couple of months. The Gavekal Capital FX Volatility Index has declined since early August and is now at a level that is slightly under the average volatility level since 1980. This has occurred at the same time that our Purchasing Power Parity (PPP) diffusion index is signalling that the the USD is neither strong nor weak. Out of 18 currency pairs, exactly nine are overvalued against the dollar and exactly nine are undervalued against the dollar. All in all, signs are pointing to a fairly valued USD at the moment.

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