¿PPP is useful to predict the US dollar evolution?

Historical Us dollar chart in terms of Purchasing power parity (PPP), (source: BCA)

Wiki text:

The purchasing power parity (PPP) theory uses the long-term equilibrium exchange rate of two currencies to equalize their purchasing power. Developed by Gustav Cassel in 1920, it is based on the law of one price: the theory states that, in ideally efficient markets, identical goods should have only one price.

 This purchasing power SEM rate equalizes the purchasing power of different currencies in their home countries for a given basket of goods. Using a PPP basis is arguably more useful when comparing differences in living standards on the whole between nations because PPP takes into account the relative cost of living and the inflation rates of different countries, rather than just a nominal gross domestic product (GDP) comparison. The best-known and most-used purchasing power parity exchange rate is the Geary-Khamis dollar (the “international dollar”).

Compare this interesting historical chart. Above you can see the evolution of the U.S. dollar related to a basket of world currencies. Below, you can see the real US dollar spread with the theoretical PPP.

During long periods, the dollar is moving away from its theoretical value according to the PPP, but we also see that at some point there is a reversion to the mean. So the convulsive years of the early 80’s, the second oil shock caused a sharp rise in the dollar because of high interest rates.

Also in the late 90’s and early 2000, the clear overvaluation of the dollar has been gradually adjusting last years, and now dollar is near his parity level in terms of PPP.

This cyclical decline has further to run for next months or years in terms of PPP indicador.

World PPP currencies map related to US level 100 (source: wikipedia)