In the case of truly floating exchange rates, when A's price drops against B, you could argue that A is now undervalued, but you could also argue that A was never worth as much as its old price
If we really talk about
truly floating exchange rates, we can say neither, that is, A cannot be undervalued at the moment, nor can it have been overvalued in the past. Why? Because the very definition of a floating exchange rate excludes such an option. If the rate of A to B changes with time, it just means that the value of A has changed against B...
In other words, a truly floating exchange rate correctly reflects the ratio of values at any given moment