The desk underscores the relevance of the latest "Mapping the World's Prices" report by Deutsche Bank, which categorizes global cities based on price levels and quality of life indicators. This analysis not only highlights the world’s most affordable locales but also examines where currency values exert the most significant influence on purchasing power. Per the full note source, understanding these dynamics provides essential context for evaluating currency strengths and weaknesses, particularly as shifts in policies affect these rankings moving forward. This insight could be crucial for currency traders navigating fluctuating exchange rates while factoring in the macroeconomic landscape and the impact on expatriate spending and investment patterns.
What the desk is arguing
The desk posits that the findings from Deutsche Bank's report offer critical insights into the global economic framework, particularly where currencies are concerned. The comparative price analysis presented in the report serves as a lens for FX traders, revealing potential undervalued or overvalued currencies against local advantages in lifestyle costs.
The report focuses on how global price adjustments and purchasing power align with current monetary policies. For instance, cities like Zurich and Tokyo appear at the higher end of the pricing spectrum, indicating stronger currencies, while cities such as Cairo and Mumbai rank lower, suggesting opportunities for currency appreciation in those markets, especially given recent economic adjustments.
Where it sits in our coverage
Currently, our consensus for the benchmark EUR/USD pair stands at 1.075 with a range between 1.04 and 1.12. Firms contributing to this forecast include: - jpmorgan: Target at 1.10 for Mar26 - bofa: More conservative with a target at 1.04 for Mar26
This view aligns closely with jpmorgan, which offers a higher estimate consistent with the findings of the Deutsche Bank report regarding purchasing power shifts, while bofa presents a more cautious perspective that may be influenced by recent G20 economic discussions. The desk’s call appears to be positioned at the midpoint of the expected range.
How other firms see it
Firms such as jpmorgan and creditagricole maintain a bullish stance on the euro, factoring in insights from the report and comparative price strength. Conversely, bofa has issued a more bearish outlook; their caution stems from anticipated political uncertainties and inflationary pressures affecting the eurozone.
Traders should observe the EUR/USD pair as it may closely reflect ongoing adjustments in inflation statistics and central bank policy shifts, notably the actions of the European Central Bank regarding interest rate adjustments that could stem from findings like those in the Deutsche Bank report.
01The Deutsche Bank report highlights global cities' prices, impacting currency valuation and purchasing power.
02Understanding these dynamics can aid traders in evaluating currency strengths and weaknesses.
03Price levels and quality of life indicators exhibit significant correlations with policy impacts.
04The current consensus for EUR/USD is 1.075, with internals suggesting varying risk profiles.
Market implications
Traders should monitor the EUR/USD level around 1.075 for potential shifts, particularly in response to upcoming inflation data that could influence ECB policy. Adjustments in local economies emphasized in the report may further impact currency valuation as consumers respond to price variations.
Risks to this view
The key risk to this call is an unexpected tightening of monetary policy from the ECB ahead of projections, which may invalidate the bullish sentiment on the euro. Additionally, shifts in geopolitical stability could dampen currency demand in lower-cost cities, potentially altering consumer spending patterns substantiated in the report.
Welcome, so which are the world's cheapest and most expensive cities? Where will the pound or euro or dollar in your pocket go furthest? Where is the best place to live, eat and go on a date?
I'm Adrian Cox, I'm here with my colleague Jim Reid from our thematic research team who's just published the latest edition of his definitive Mapping the World's Prices report for the Deutsche Bank Research Institute. So Jim, you've been tracking global prices for many years now, what are the biggest changes you've seen in this period? Yeah, thank you Adrian.
Yes, we've been doing this report since 2012 and I think what I'm struck by is that when I first started this report, US cities were generally outside the top 10 in both prices of goods and services and salaries when compared to their international peers. Today they're right up with Zurich and Geneva as the most expensive places in the world and with the highest salaries, so that's probably the biggest change. I would also say one of the other big changes is that in the quality of life indices that we have, the mega cities have progressively gone down year after year which is an interest in development.
What about these leading global financial centers like London, New York, Tokyo, Paris, where do they rank and why is that? It is interesting because if you look at the kind of mega financial cities which we're looking at in this report, Tokyo is 26 on quality of life, Paris is 44, Hong Kong 48 and London and New York are tied at 50, so pretty low down and I think they're hampered on this basis by expensive housing, longer commutes, higher than average pollution levels and that has definitely got worse and property prices have gone up over that period. I think we've got to remember though, it is highly subjective, so not everybody would share the kind of criteria we've picked and other people might value the cultural richness of a city, they might value the social connections you can make in a city and we can't capture that in the data but on a kind of more quantifiable metrics, they've certainly become less attractive to live in than they were in the past.
Then looking at your quality of life index, interesting Luxembourg comes top. What is Luxembourg's secret sauce and is there anything that it can teach other cities? I suppose Luxembourg tops a list of smaller European cities that are edging up year after year and I think that's because they're cities, you still have the financial reward but these smaller cities probably score better on pollution, much shorter commuting times, hasn't gone quite so crazy in terms of going up and therefore I think people are slowly more attracted to them and they score better on a quality of life basis.
Luxembourg actually has free public transport now so that doesn't do it any harm in terms of these measures. I suppose one of the interesting climbers though is Frankfurt which now comes in at seventh on our list and I think it combines it being a big financial city and all the rewards you get from that with actually having a slightly less hectic pace of life and shorter commutes etc. So that's a surprise package in the report.
One of the phrases that you use actually is peak pricing which you refer to in relation to the US. What exactly does that relate to and is that a blip? What's changing?
Is that something which is going to be prolonged do you think? Yeah, as I mentioned earlier, the US was one of the cheaper places internationally or certainly outside the top 10 back in 2012 and it's now right up there at the top and I think that reflects a few things. Firstly, the US dollar was relatively cheap in 2012.
Today it's relatively expensive relative to its longer term valuations. There's also a story of US exceptionalism over the recent years. You've had Wall Street success and importantly you've had a tech sector boom and the tech sector as we know is US led.
So all of those have combined to make US go from a country with cities outside the top 10 to really nudging up against number one spot in many of our categories. Now one of the really interesting aspects of the report was what it said about India. A lot of those cities looking very cheap.
Is that an investment opportunity or is that a risk factor do you see? Yeah, when we did the data, I think India surprised me most because it will be the third largest economy within a few years, definitely by the end of the decade. But I suppose in looking at it and thinking about it, I suppose India's fast growth has been very rapid but it still is a developing country and if you look at India on a per capita basis GDP or a purchasing power basis, it actually ranks outside of the top 100 comfortably when you look at the list of countries.
So it's a bit of a dichotomy between soon to be the third largest country in the world but with per capita income that is outside the top 100. Now given what we know about the forward for India, the fabulous demographics, the rapid growth, I would expect there to be pretty big catch up there. So when we did this report in 5 or 10 years' time, I'd expect Indian cities to be climbing the rankings in terms of most expensive nurse and also in terms of salaries across the board.
Yeah, one area where we definitely see a lot of expense is in utility costs, particularly in Germany where three of the top four cities are among the most expensive for that and I think about 18 of the top 20 cities overall are in Europe for utility costs. What does that actually mean for manufacturing, for production, for potential industrial output in Europe? Yes, first we'll look at why that's the case.
I think Germany's had a few unfortunate situations that occur within a relatively short space of time. They lost access to Russian gas, they phased out nuclear energy and also concentrated on renewable energy which is great for the future but it does come at a higher cost in the short term. So those things have made German cities the most expensive in the world in terms of utility bills and obviously Germany is the industrial heartland of Europe so higher energy cost is not great for the economy.
But obviously we've got the new German government putting in place a huge infrastructure spend and a part of that is trying to address the energy problem. So I think these are things that are being dealt with in terms of policy but it is stark from the data that German cities are the most expensive utility bills and other central to eastern European cities are not far behind and that is a proximity to Russia and where they previously got their gas from that they no longer can. One of the interesting aspects of this report and I think probably quite well known now is the cheap date index which you have.
What is this and what does it say about where I should be taking my wife out for dinner to impress her? Yes, our cheap date index is supposed to reflect a relatively restrained but enjoyable night out with a partner or a prospective partner. In that we include a bottle of wine, a dress, a pair of jeans.
What a generous night out then. Well yes, I mean I must admit I don't think I bought a pair of jeans every time I went on a date but that's the nature of the index. Two coffees, a meal, two cinema tickets, public transport and then a taxi home.
So actually it's quite an extensive list of goods and services and covers a selection of the stuff we've got in our report so it's a nice way of aggregating it. On this, Geneva and Zurich are the most expensive but Copenhagen, Oslo and London are places that make up the rest of the top five and you might be advised to stay in and watch the telly if you're comfortable in your relationship. I mean interestingly at the other end of the spectrum there's some nice places that are very cheap to go on a date.
So Cairo, Rio and Cape Town are half to a third of the cost of our top cities but obviously if you're taking your wife there, you might want to consider the airfare as part of the cost that we're not including. Yeah, I think that's a classic externality, isn't it? What about looking ahead to 2030 and think of your boldest prediction for that, which cities are really going to be on the march and which cities do you think are going to be falling down the ranks?
Yeah, I mean I've mentioned this before. I do think the US is probably at peak pricing now. The US dollar is very expensive internationally and I think the policies of the administration are probably going to be biased to moving the dollar down over the years ahead and therefore I think the US cities are probably going to slip down our rankings in the years to come.
I think European cities probably will edge up the rankings. I think the Euro will probably edge up in the years to come and then obviously as I've said India I think is probably the place where cities will go up the rankings most in the next several years. And if I was someone who or let's say we've got listeners here who are thinking about making an international move or making international investment in the coming year or so, what's the one thing that they should take away from this report?
Yeah, I mean if you were looking at where to move, if you were lucky enough to have job offers from a lot of different places. 69 different cities for example, the ones in the survey. Yeah, Switzerland has got a very good track record of maintaining purchasing power and its salaries are at the top of the charts and they have been around the top for some time. And I think that's a lot about policy.
The Swiss franc has been one of the few currencies to appreciate against the dollar in the last 12, 13 years since we first did the report and to be honest if you go back 20, 30, 40, 50 years, the Swiss franc is the best performing currency. So Swiss policy has maintained purchasing power better than any other. So if you are offered a job in Switzerland, financially you might be wise to at least consider it.
Thank you. Now let's do a quick fire round with truth or myth on a number of questions. So number one, Switzerland is the world's most expensive country.
Truth or myth? I think that would be truth. Switzerland comes consistently at the top of our rankings year on year.
And why is that? I think it's because of the consistency of policy. The Swiss franc has been one of the few currencies that have constantly appreciated against the dollar in the last decade, two decades, five decades.
Higher cost of living usually means higher salaries. Truth or myth? Yes, I would say that's true.
Normally they go hand in hand across most, especially developed market cities. It doesn't make much of a difference if you rent an apartment or buy an apartment in an expensive city. The more expensive, the more expensive.
That's not quite true in the case of the U.S., which has a huge split between renting and buying. So across our rental indices, U.S. cities are pretty much all in the top 10. We have five cities, U.S. cities in the report, they pretty much all in the top 10.
If you look at it to buy though, U.S. cities are further down the list. I think that's because the U.S. is a bigger place. There's less urban sprawl.
So a lot of the cities in our report are very densely populated with not much room to expand. So you tend to get a supply and demand issue. Obviously, that's there for U.S. cities, but it's probably a little bit less intense.
The one thing I would say though is although the sticker price of apartments in U.S. cities are lower, mortgage costs are higher. So if you adjust it for that, it might net out a little bit more neutrally. Italy really is the place of La Dolce Vita when it comes to coffee and to wine.
Truth or myth? I think that's true. In research in this study, I found it was absolutely true that to buy a coffee in Italy is much cheaper than elsewhere and to be fair, wine as well.
And I think the culture in Italy is that the locals expect as a right to have a cheap coffee or a cheap glass of wine. And I think the bars, coffee houses, et cetera, realize this and don't overcharge and attract a local community in. So yes, Italy is a very good place to live if you like coffee and wine.
There are only three certainties in life, death, taxes, and rising London transport prices. Truth or myth? I think that is true, which explains why I tend to walk everywhere around the city rather than get on the tube.
London does have by far and away the highest public transport costs in the world. I would say as a caveat that the public transport network in London is probably one of the most extensive in the world. So you're probably paying for a pretty extensive transport network, but prices are certainly very high relative to international peers.
The characters in Friends, Seinfeld, and Sex and City could never afford their huge New York apartments now. Truth or myth? I think that would be absolutely true.
I think in the time we'd be doing the report, prices have gone up much higher than salaries and that's over the last 13 years. But obviously, those programs were probably 25 years ago now and maybe even a bit longer. And I think that would be even more exaggerated.
Double denim is a luxury best enjoyed in the US. Truth or myth? Yes.
Although the US is up there in the most expensive cities for most products, good services, actually the one thing where you can get jeans relatively cheaply is in the US. So when you're next over in the US for holiday or for business, pick up a pair of jeans there. Fantastic.
Thank you, Jim. Thank you for listening or watching. We hope you've enjoyed it.
And if you want to find out more, then have a look at the Deutsche Bank Research Institute where we have the full report plus many other reports on everything from geopolitics to macroeconomics to the corporate landscape and technology. Thank you. See you again next time.
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