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Why British pound is more overvalued than euro and usd, even though these currencies(euro and usd dollar) are more traded than British pound?

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    $\begingroup$ Welcome to the site. I suggest that you edit your question to relate it to a specific time period, as a currency may be overvalued at one time and undervalued at another. Like all the SE sites, Economics SE aims to build up a collection of questions and answers that people may refer to many years after they are asked. $\endgroup$ – Adam Bailey Jul 11 at 16:48
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It is not "overvalued" per se, it just has a higher exchange rate when compared to those currencies. If you compare the price levels of typical consumer goods in the UK and in the US, for example, you would find that prices are generally higher in the US. A neat concept in macroeconomics is Purchasing Power Parity (PPP). PPP is a concept that considers a situation: a coffee in the UK costs say 4 pounds, and a coffee in the US costs 2 dollars. What PPP implies is that the pound to dollar exchange rate should be 2:1 so as to equalize the real cost of a coffee between countries. This does not necessarily reflect reality as there are a multitude of transaction costs and external influences on exchange rates, but I see the concept of PPP as a good starting point for understanding the difference in currencies without all the external influences.

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