Our approach to currency valuation

This Focus provides an overview of the concepts and models underpinning our new FX Markets Valuations Monitor. It is split into three sections. The first explains our framework for thinking about currency valuations. The second provides details on the key concepts and models we use to estimate “equilibrium” exchange rates. The third describes how we apply these tools in our analysis of currencies, and how best to interpret the outputs from our suite of models.
Jonathan Petersen Markets Economist
Continue reading

More from FX Markets

FX Markets Update

Most signs point to further trouble for the Turkish lira

We expect the Turkish lira to remain among the worst-performing currencies over the next two years, as political pressures, high inflation, and a vulnerable external position continue to weigh on the currency.

22 October 2021

FX Markets Weekly Wrap

US dollar falls back as Treasury yields edge down

The US dollar seems set to end the week lower against most currencies, as “risky” assets have rallied and US Treasury yields have edged down a bit. This fall back in the dollar and US yields is somewhat surprising in light of the stronger-than-expected inflation data released Wednesday. But we think those data add to evidence that inflationary pressures in the US remain strong, and will gradually push Treasury yields, and the dollar, higher. And while this week’s rebound in risky assets suggests that concerns about the global economic recovery are fading, the latest activity data from China and the US (due on Monday) are likely to set the tone for FX markets next week.

15 October 2021

FX Markets Update

We don’t expect tapering to be a key driver of the US dollar

We doubt that the direct effects of the tapering of the Fed’s asset purchases will have much of an impact on the US dollar, and think that other factors will be more important in pushing the greenback higher.

15 October 2021

More from Jonathan Petersen

FX Markets Weekly Wrap

Dollar rally takes a breather as US Treasury yields stall

The US dollar looks set to end the week little changed against most currencies, as US inflation data – this week’s main data release – failed to push up the currency further. Next week, the minutes of the Fed’s July meeting may shed more light on policymakers’ latest thinking, and we expect the RBNZ will be the first among developed market central banks to raise rates with a 50bp hike, more than the 25bp hike that is widely anticipated.

13 August 2021

FX Markets Update

We expect rising UST yields to extend the dollar’s rally

We expect further rises in US Treasury yields to support continued gains in the US dollar against most other developed market (DM) currencies, especially the yen and the Swiss franc.

13 August 2021

FX Markets Update

We expect commodity currencies to remain under pressure

Although the currencies of most commodity exporters appear undervalued in the context of high commodity prices, we still think most commodity currencies will depreciate further against the US dollar.

11 August 2021
↑ Back to top