The Daily Prophet: America No Longer Commands a Premium Multiple

You can often tell when shareholders are losing confidence in management: A company's share price will likely trade at a discount to others in its sector. It's not much different with a nation's currency and government, except that it's a bit harder to figure out than just comparing price-to-earnings multiples.

One of JPMorgan's top strategists took a stab at trying to determine the relative value of the U.S. greenback, which dropped to an 11-month low as measured by the Bloomberg Dollar Spot Index in the wake of the Trump administration's latest failure on repealing and replacing Obamacare. The conclusion of John Normand, the head of FX, commodities and international rates at the biggest U.S. bank, is that the dollar is about 5 percent too cheap when accounting for interest rate differentials. To understand just how bad things are for the dollar, consider that it has fallen this year against all 16 major currencies tracked by Bloomberg, including Brazil's real, where the government is mired in corruption investigations and President Michel Temer is fighting charges of graft.

Of course, when valuing a currency, there are many variables to consider beyond the political situation, including economic momentum, central bank policies and terms of trade. And Normand does acknowledge that when looking over a longer time frame of a decade or so the dollar looks to be about 10 percent too strong on a real effective exchange-rate basis. But even that premium is starting to shrink. "The takeaway is that the combination of low inflation, low rates and low reform momentum give investors little reason to hold dollars," Normand wrote in a research note to clients.