Ulrich Leuchtmann, Head of FX and Commodity Research, has had a lot of calls enquiring about the reasons why Emerging Market (EM) currencies are doing badly at present. In his view, it simply is not true that we see EM weakness.
EM weakness? What EM weakness?
Those who think they are seeing EM weakness are confusing USD strength with EM weakness. This analysis is distorted simply because currencies are quoted against the Dollar. Everything the USD prices of the EM currencies are doing is allocated to the EM currencies and nothing to the Dollar. If one uses a more suitable fix point (in this case the mean of the other G10 currencies) this mistake is easier to avoid.
So, let me repeat slowly for everyone to take on board: there is no EM weakness at present. That does not mean that individual currencies might not be easing due to idiosyncratic reasons, but EMs as a whole are doing quite well. Just not as well as Greenback.
This article was originally published by Fxstreet.com.Read the original article here.
