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‘The dollar rally is coming to an end’Deviations from this equilibrium are reflected in the movement of real exchange rates. Van der Welle discovered that these deviations in real exchange rates often revert to the equilibrium situation within five years, bringing them back into line with inflation differences: “You could compare this concept with the Shiller PE for equities. An above-average real exchange rate is an indication of an overvalued currency and an expected decline in the nominal exchange rate over the medium term.”
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