EM currencies have been dropping in REER terms, when compared to the USD, despite rising in spot terms: Emerging market currencies measured solely against the USD in nominal, non-inflation adjusted terms have gone the way of the EM bull market this year and have grown 5.4%. However, when measured in terms of a country’s real effective exchange rate (REER) and factoring in inflation, EM currencies have actually fallen 0.5% this year, based on a GDP-weighted basket of 37 currencies, writes Steve Johnson for the Financial Times. “On the surface, they have done well indeed — against the USD a simple average of the 20 most liquid EM currencies is up 5.2% in spot terms. However, against the EUR this group has lost 6.2%. In trade-weighted terms EM FX has gone absolutely nowhere,” says Bhanu Baweja, EM strategist at UBS. Saudi Arabia, the Philippines, Ecuador, Hong Kong, Pakistan and Kuwait have all seen their currencies slide in REER terms.

But this isn’t the case across all EMs: The EGP is among the few currencies which have seen gains in REER terms since 2016. The strongest gains came from the Ukrainian hryvnia, while the Mexican peso and Czech koruna have also strengthened.