As the global economy continues to evolve, certain currencies emerge as undervalued, presenting unique opportunities for investors and traders. In 2024, amidst fluctuating markets and geopolitical changes, understanding which currencies are undervalued can be a key to strategic international investment and trading. This article explores the most undervalued currencies in 2024, examining the economic and geopolitical factors that contribute to their valuation.
Ever wondered how currencies are valued? Well, they can be valued based on the Big Mac Index. The Big Mac Index refers to the informal measure of currency exchange rates. It was created by The Economist in 1986 and is based on the purchasing power parity (PPP) theory, which suggests that over time, exchange rates should adapt to balance out the costs of identical goods and services across different countries.
The Big Mac Index measures the cost of a McDonald's Big Mac burger in different countries and compares it to the cost of a Big Mac in the United States. If the price of a Big Mac in a particular country is higher than the price in the US, then the currency is said to be overvalued. Conversely, if the price of a Big Mac in a particular country is lower than the price in the US, then the currency is said to be undervalued. According to the Big Mac Index by The Economist, below are the top 10 most undervalued currencies in 2024 starting with the most undervalued to least undervalued.
Understanding undervalued currencies
As the global economy continues to fluctuate, investors are always looking for new opportunities to maximize their returns. One area that has sparked the interest of many investors and traders is the world's most devalued undervalued currencies.
While some currencies such as the US Dollar, Euro, and Yen enjoy high valuation and global recognition, others are often overlooked or undervalued. These Undervalued currencies can have great potential for investors, traders, and even tourists looking for affordable destinations. However, identifying those undervalued currencies requires a deep understanding of the economic and geopolitical factors that influence currency markets.
An undervalued currency trades at a lower value than its perceived intrinsic worth. Factors like political instability, economic challenges, and market sentiment often contribute to this undervaluation. Identifying such currencies requires a keen understanding of global economic trends and geopolitical shifts. In 2024, several currencies have emerged as undervalued, offering potential for strategic Forex trading.
Below, we will explore some of the most undervalued currencies in the world in 2024 and learn why currencies depreciate and how to trade them.
Related article: Most expensive currency in the world
Most 10 undervalued currencies in 2024
In this analysis, we focus on ten currencies that currently stand as undervalued in the international market. Understanding the dynamics of these currencies is crucial for investors, economists, and global market enthusiasts. Each currency's valuation is a mirror reflecting the economic health, policy decisions, and market perceptions of its country.
As we delve into the specifics of these undervalued currencies, we aim to provide a comprehensive understanding of their current position in the global economy, shedding light on the complex interplay of factors that influence their value.
1. Iranian Rial (IRR)
- Economics: The Iranian economy has been significantly impacted by international sanctions, political unrest, and high inflation.
- Currency: The rial's value has been persistently low, partly due to geopolitical tensions and economic isolation.
- Challenges: Iran's reliance on oil exports and the impact of sanctions have led to a volatile economic environment, further weakening the rial.
2. Vietnamese Dong (VND)
- Economics: Vietnam's economy is diverse, with key sectors including electronics, energy, and textiles.
- Currency: The dong's value is influenced by restrictions on foreign investment and a recent slowdown in exports.
- Challenges: Rising interest rates in the US and global market shifts have put pressure on the dong, affecting its international valuation.
3. Sierra Leonean Leone (SLL)
- Economics: Sierra Leone's economy is primarily based on mining and agriculture, with significant exports of diamonds and other minerals.
- Currency: High inflation rates and economic instability have led to the devaluation of the leone.
- Challenges: The country is still recovering from the long-term effects of the Ebola outbreak and faces ongoing economic challenges.
4. Laotian Kip (LAK)
- Economics: Laos relies heavily on exports of natural resources like copper and gold.
- Currency: The kip is affected by the country's economic growth, foreign debt, and inflation rates.
- Challenges: Laos faces challenges in diversifying its economy and managing its foreign debt, impacting the kip's value.
5. Indonesian Rupiah (IDR)
- Economics: Indonesia is the largest economy in Southeast Asia, rich in commodities and with a strong services sector.
- Currency: The rupiah is influenced by Indonesia's economic policies, inflation rates, and global commodity prices.
- Challenges: High inflation and fears of a global recession have led to a decrease in the rupiah's value.
6. Lebanese Pound (LBP)
- Economics: Lebanon has a service-based economy, but it's currently facing a severe economic crisis.
- Currency: The pound's value has plummeted due to political unrest, a banking crisis, and high unemployment.
- Challenges: Lebanon's economic recovery is hindered by political instability and a lack of effective economic reforms.
7. Uzbekistani Som (UZS)
- Economics: Uzbekistan's economy is based on cotton exports and substantial mineral reserves.
- Currency: The som's value reflects the country's ongoing economic reforms and market liberalization efforts.
- Challenges: Challenges include managing inflation, unemployment, and corruption, which affect the som's valuation.
8. Guinean Franc (GNF)
- Economics: Guinea is rich in natural resources but faces challenges like high inflation and political instability.
- Currency: The franc's value is affected by the country's economic policies, resource management, and regional stability.
- Challenges: Guinea struggles with managing its abundant natural resources effectively, and the influx of refugees from neighboring countries adds to its economic strain.
9. Paraguayan Guarani (PYG)
- Economics: Paraguay's economy is based on agriculture, with significant exports of soybean, stevia, and beef.
- Currency: The guarani is impacted by domestic economic policies, inflation, and regional trade dynamics.
- Challenges: Issues such as corruption, counterfeit currency, and reliance on a few key agricultural products make the guarani vulnerable to external shocks.
10. Ugandan Shilling (UGX)
- Economics: Uganda has a commodity-rich economy, with exports including oil, gold, and coffee.
- Currency: The shilling's value is influenced by the country's economic growth, political stability, and global commodity prices.
- Challenges: Uganda faces challenges like high debt levels, political unrest, and the need to diversify its economy beyond commodities.
The landscape of undervalued currencies in 2024 presents a complex but potentially rewarding opportunity for investors and traders. While these currencies may offer attractive entry points due to their lower relative value, it's crucial to conduct thorough research and understand the underlying factors driving their undervaluation. As always in Forex trading, a balanced approach that considers both potential risks and rewards is advisable.
Related article: What is Forex trading?
Why do currencies depreciate?
Currencies may depreciate or lose value against other currencies or goods and services for a variety of reasons, including:
- Inflation: If a country experiences higher inflation than its trading partners, its goods and services become relatively more expensive, causing a decline in demand for its currency.
- Interest rates: A country with relatively lower interest rates than its trading partners may experience a decline in demand for its currency, as investors seek higher returns elsewhere.
- Political instability: Uncertainty or instability in a country's political situation can erode investor confidence, leading to a depreciation of its currency.
- Current account deficit: A country with a current account deficit, meaning it imports more than it exports, may see a decline in demand for its currency.
- Speculation: This may force currency traders to sell a currency in anticipation of a decline in its value, which may lead to a depreciation.
- External factors: External factors such as changes in global commodity prices, economic shocks, and natural disasters can also contribute to currency depreciation.
How to trade currency pairs
Trading currency pairs involves buying or selling one currency in exchange for another currency. Here are the basic steps to trade currency pairs:
- Choose a broker: To trade currency pairs, you'll need to choose a reputable Forex broker that offers access to the currency markets.
- Choose a currency pair: There are dozens of currency pairs to choose from, but it's best to start with major pairs such as EUR/USD, USD/JPY, or GBP/USD.
- Analyse the market: Use technical and fundamental analysis to determine the direction of the market and identify potential entry and exit points for your trades.
- Decide on your trading strategy: Determine your trading strategy based on your analysis, risk tolerance, and investment goals. Some common trading strategies include scalping, day trading, swing trading, and position trading.
- Place your trade: Once you've determined your trading strategy, use your broker's trading platform to place your trade. This involves specifying the currency pair, the amount of currency you want to buy or sell, and your stop loss and take profit levels.
- Monitor your trade: After you've placed your trade, monitor it closely to ensure that it's performing as expected. If the market moves against you, be prepared to adjust your trade or exit it if necessary.
It's important to remember that trading currency pairs involves a high degree of risk, and it's possible to lose more than your initial investment. As such, it's important to have a solid understanding of the markets, a well-defined trading strategy, and a risk management plan in place.
Summary
The world of currency exchange is complex and constantly changing, and it is important to stay up to date on the most undervalued currencies to make informed trading decisions. While some currencies may be undervalued due to economic or political instability, others may simply be overlooked by the market. By doing your research and keeping an eye on global trends, you may discover hidden gems in the Forex market that offer great growth potential. However, it is also important to remember that currency exchange carries inherent risks and it is important to conduct thorough research before making trading decisions. With this in mind, always staying informed and taking a measured approach can help you navigate the world of foreign exchange and potentially reap rewards.
FAQs
1. Is investing in undervalued currencies in 2024 a good strategy?
Investing in undervalued currencies can offer profit opportunities, especially if the currency's value aligns more closely with its fundamental economic strength over time. However, it's important to understand the risks and conduct a thorough market analysis.
2. What determines a currency's value in the global market?
A currency's value is influenced by a combination of factors including economic stability, interest rates, inflation, government debt, political stability, and overall supply and demand in the foreign exchange market.
3. Why are some currencies undervalued?
Currencies can be undervalued due to economic challenges like high inflation, political instability, trade deficits, or lack of investor confidence. Sometimes, a currency might be deliberately undervalued through government policies to boost exports.
4. How can an undervalued currency affect its home country?
While an undervalued currency can make exports more competitive, it can also lead to higher import costs and contribute to inflation. It may also reflect underlying economic issues that need addressing.
5. What are the risks and opportunities of investing in undervalued currencies?
Investing in undervalued currencies can offer significant opportunities for profit if the currency's value is correct. However, it's risky as these currencies are often associated with unstable economic environments.
6. How can traders stay informed about currency valuations?
Traders should regularly follow financial news, use Forex analysis tools, and keep an eye on economic indicators like GDP growth, inflation rates, and government policies. Subscribing to reliable financial news services can also be beneficial.
7. Is currency trading suitable for all investors?
Currency trading involves significant risk and is not suitable for everyone. It requires an understanding of the Forex market and a willingness to accept the high level of risk, including the potential loss of the initial investment.
8. Can political events affect currency values?
Yes, political events such as elections, policy changes, or geopolitical tensions can have immediate and significant impacts on a currency's value, often leading to volatility in the Forex market.
9. What role do central banks play in currency valuation?
Central banks play a crucial role in currency valuation through monetary policy, interest rate adjustments, and, in some cases, direct intervention in the Forex market. Their decisions can significantly influence the strength or weakness of a currency.
10. How important Is economic diversification for currency strength
Economic diversification is vital for currency strength. Economies reliant on a narrow range of exports or sectors are more vulnerable to market fluctuations, which can lead to currency volatility.
11. What should beginners know before trading in undervalued currencies?
Beginners should understand the high risk involved in Forex trading, especially with undervalued currencies. It's essential to start with a solid educational foundation, practice with demo accounts, and only invest money that one can afford to lose.
