BNP Paribas UK News
September 18, 2013 -

BNP Paribas launches EM STEER™ – a fair value FX model for emerging markets

Forward to a friendForward to a friend PrintPrint

LONDON, 18th September 2013: 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 21 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.