FOREIGN EXCHANGE | Staff Reporter, Singapore

BNP Paribas helps investors detect mispricings in 21 EM currency pairs in Asia

Check out the new EM STEER.

BNP Paribas has extended its unique STEER model, the bank’s short-term estimate of exchange rate fair value, to cover a range of emerging markets, with the launch of EM STEER.

BNP Paribas EM STEER will help investors detect mispricings in twenty one EM currency pairs in Asia, Latin America and CEEMEA from their short-term fundamentals.

It follows the successful rollout of BNP Paribas’s STEER™ model in 2012 and provides a unique framework for identifying when a currency is mispriced relative to interest rate, equity and commodity markets. Typically, a currency’s misalignment from its STEER is short lived and is an important input when forecasting and trading currencies.

Steven Saywell, Global Head of FX Strategy at BNP Paribas, said: “BNP Paribas STEER is designed to be useful for all investor types by helping to identify when a currency is mispriced relative to other financial markets. BNP Paribas’ extensive backtesting of the model indicates that it should be a useful quantitative tool for our clients.”

In line with the original STEER model, BNP Paribas EM STEER will bolster the reach of FX Strategy at BNP Paribas for three principal reasons:

• It uses financial market data rather than economic data to determine fair value.
• It provides a short-term under/over valuation signal. It typically takes 1-2 weeks for a currency to move back in line with its STEER.
• It is aimed at non-quant as well as quant investors, with updates published in a weekly standalone publication, FX Quant Insight, and integrated into BNP Paribas’ overall FX strategy view.

The principal authors are Michael Sneyd, FX Strategist & Lead Quant Strategist, and James Hellawell, Quantitative Strategist, who have developed the new model in coordination with BNP Paribas’ Local Market Strategy Teams.

"BNP Paribas STEER pioneered an approach to establishing short-term fair values of G10 exchange rates based on relationships with interest rates, equities and commodities. Our emerging market model follows this approach,” adds Steven Saywell.  

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