Emerging market economies with overvalued currencies now – generally speaking –have less overvalued currencies.   The Turkish lira was too strong at the beginning of the year.  Turkey’s current account deficit was big, and set to get worse.  Folks found ways to rationalize it:  using unit labor costs rather than prices, the real exchange rate wasn’t really at a historical high, exports were still growing and so on.   But the lira was pretty clearly overvalued – even if the precise trigger than would prompt a correction wasn’t.

Turkey isn’t alone.  As Steve Johnson of the Financial Times noted, this past week the currencies of most emerging economies with large current account deficits tumbled.  Call it differentiation.   It wasn’t good for those holding Turkish lira.  Or Hungarian florint.  Or South African rand.  

Or for that matter Icelandic Krona and New Zealand dollars, even if neither Iceland nor New Zealand is an emerging economy.

Who isn’t on this list even though its fundamentals suggest it belongs?  Lex nailed it.  The United States.   The current real value of the dollar is such that the US trade deficit should expand with normal rates of US and world growth.  

What hasn’t happened this year?   Overvalued emerging market currencies have fallen v. the dollar, but undervalued emerging market currencies haven’t risen. 

China continues to experiment with variants of 7.99x.    Chinese authorities plan to cross the river by touching every pebble.   The Saudi riyal hugs 3.75, no matter what happens to the price of oil.   Both China and Saudi Arabia have big and growing current account surpluses.

If the currencies of countries with big current account deficits fall against the dollar, but the currencies of countries with big current account surpluses don’t rise, the dollar won’t move that much this year, at least in broad trade-weighted terms. The dollar is not the dollar-euro.  The dollar-RMB and lots of other currencies matter.