MXN/USD Mexican Peso. Understanding currency fair value

When looking at currencies we tend to look at the short term and not the bigger picture. I put together this chart to show why emerging market currencies are not as undervalued as many think. Inflation of asset prices dilutes currencies over time otherwise emerging markets would become extremely rich their assets appreciate in line with inflation yet the currency stays the same when exchanged to a dollar.

Recently emerging market currencies saw a signifincat loss of value spurred by COVID-19 but when we analyse the longterm inflation rate we see this is more like a catch up to reality inline with inflation on asset prices than an exaggerated loss of value.

Increased political and economic risks coupled with low-interest rates will likely keep these currencies at there values and find a new range at these levels.