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Dipping Below 100bps For Next Two Fed Meetings

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FOREX: On Monday, Bank of America research noted that they updated "equilibrium
estimates and discuss current misalignments in G10 FX, based on a number of
methodologies. Valuation is not what is driving FX during the Covid-19 crisis,
and we cannot ignore either the current highly fragile backdrop or the
possibility that the aggressive monetary and fiscal measures deployed to deal
with the crisis will impact both the timing of an eventual pull to equilibrium
and perhaps the equilibrium level itself. Nevertheless, it can still be
interesting to take stock of where G10 currencies stand compared with their
long-term equilibrium. We use six different methodologies: deviation of REER
from its historical average, Purchasing Power Parity, Fundamental Equilibrium
Exchange Rate, IMF external sector assessment, Bloomberg REER model and our
Behavioural Equilibrium Exchange Rate model. Although the results vary depending
on the methodology, most results agree that the USD and CHF are the most
overvalued G10 currencies, while SEK and JPY the most undervalued. EUR is also
undervalued, while the results are mixed on GBP. Most results also point towards
some CAD overvaluation and NOK undervaluation."
MNI London Bureau | +44 0203-865-3809 |
MNI London Bureau | +44 0203-865-3809 |

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