While the US dollar has fallen against most currencies since the start of the year, our estimates of the greenback’s “fair value” are broadly unchanged, leaving it only somewhat overvalued in our assessment. The valuations of most G10 currencies (excluding the Japanese yen and Norwegian krone) remain near fair value. By contrast, we think the outperformance of currencies of Central and Eastern Europe (CEE) and Latin America has overshot the improvement in economic fundamentals, leaving some of those currencies – in particular, the Hungarian forint and Mexican peso – vulnerable to sharp falls in the short term.
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