Since the height of the Lira and Peso sell-off in August 2018, both currencies have weakened sharply in real effective terms. While both have seen their current account deficits narrow sharply, this is mostly due to cyclical weakness and not genuine rebalancing. This is why our FX fair value model signals that both the Lira and Peso are only fair and not undervalued.

We backtest our valuation signals by looking at subsequent REER moves. We find substantial predictive power in Brazil, India and South Africa,which is where our model currently signals material misalignments.

Our EM FX fair value estimates update prompted lots of questions on the inner workings of our model which we lay out in a series of equations and a summary table in this piece.

This Global Macro Views updates our fair value estimates for EM FX, incorporating large exchange rate, current account and activity moves. Argentina’s Peso and the Turkish Lira are only mildly expensive here, while India, Indonesia and South Africa remain overvalued in FX terms. EM Asia continues to be significantly undervalued, including China.

We unveiled our EM FX valuation framework one year ago today, which signaled substantial overvaluations for Argentina and Turkey. Our model says that both currencies have converged to near fair value. But neither is cheap as current account adjustment is mostly cyclical.

This year began with large currency overvaluations in Argentina and Turkey, but the Peso and the Lira are at this point undervalued, the latter sig

Early this year we warned of large FX overvaluations in Argentina and Turkey. With both currencies having fallen a lot, we update our EM FX valuation

Market volatility and global interest rates have risen sharply, "¦ a challenge for emerging markets dependent on external financing. We scan the emerg