Disliked{quote} While they have no mandate to target exchange rates directly, they must take exchange rates into account for the things they do target, which can then indirectly affect exchange rates. Draghi hinted at this more than once IIRC. As for PPP, we can always ask the same pricing questions as with any instrument - why has the market not yet priced in the long-term fundamentals if they are so certain? Will PPP remain there patiently while the market price catches up, or will it be somewhere else by that time? And, which central bank is more likely...Ignored
ppp is just a long term anchor but G10 currencies usually revert every 5 years on average. sure sooner or later the fed will go ahead and increase rates, but this is rather a trade for next year or so. because when the global recovery picks up the dollar usually loses. moreover there is a real risk that the fed cannot act independently any more due to the high indebdedness of the US. raising rates too much could cause fiscal problems. if such an impression came up the usd would be dumped down the toilet, not 1 or 2 cents but rather 10 or 20 cents.
Another day, another dollar.