EM FX was mostly firmer last week as the dollar was broadly weaker last week due to a combination of weak US data and repricing of Fed easing expectations. HUF, PLN, and CZK outperformed while TRY, COP, and CNY underperformed. While most Fed officials are willing to wait and see before cutting, we see growing evidence of a US slowdown. This week brings key June data that should confirm this thesis and so EM FX should continue to gain at the expense of the dollar.
AMERICAS
Peru reports June CPI data Tuesday. Headline is expected at 1.67% y/y vs. 1.69% in May. If so, it would remain in the bottom half of the 1-3% target range. At the last meeting June 12, the central bank kept rates steady at 4.5% and noted that “Most indicators and expectations remained in the optimistic range, in a context where economic activity is hovering around its potential level.” However, it warned that “The outlook for global activity has deteriorated as a result of restrictive measures on foreign trade.” Next meeting is July 10 and another hold is likely.
Chile central bank minutes will be released Thursday. At that June 17 meeting, the bank kept rates steady at 5.0% for the fourth straight meeting. However, it signaled further easing ahead as it said that if its baseline scenario materializes, the policy rate “will be approaching its range of neutral values” in the coming quarters. The neutral rate has been estimated to between 3.5-4.5%. Next meeting is July 29 and another hold is likely. The swaps market is pricing in 75-100 bp of total easing over the next 12 months that would see the policy rate bottom between 4.0-4.25%.
Colombia central bank minutes will be released Thursday. At last week’s meeting, the bank kept rates steady at 9.25% and warned that “The projected increase in the fiscal deficit for 2025 and beyond poses a challenge to the sustainability of public finances and reduces the room for monetary policy easing.” The bank noted that “Global financial conditions remain tight amid heightened global geopolitical tensions.” Next meeting is July 31 and another hold is possible if the fiscal outlook does not improve. The swaps market is pricing in 50-75 bp of total easing over the next 12 months.
EUROPE/MIDDLE EAST/AFRICA
Poland reports June CPI data Monday. Headline is expected to remain steady at 4.0% y/y. if so, it would remain above the 1.5-3.5% target range. National Bank of Poland meets Wednesday and is expected to keep rates steady at 5.25%. Governor Glapinski holds his post-decision press conference Thursday. Minutes of the June 4 meeting will be published Friday. At the last June 4 meeting, the bank delivered a hawkish hold as Governor Glapinski dropped previous guidance of more easing in the autumn. Instead Glapinski stressed “We are not announcing any path for interest rates.” The swaps market is pricing in 100 bp of total easing over the next 12 months, followed by another 50 bp over the subsequent 12 months that would see the policy rate bottom near 3.75%.
Turkey reports June CPI data Thursday. Headline is expected at 35.20% y/y vs. 35.41% in May, while core is expected at 35.35% y/y vs. 35.37% in May. If so, headline would be the lowest since November 2021 but still well above the 3-7% target range. At the last meeting June 19, the central bank kept rates steady at 46.0% and noted that inflation expectations and pricing behavior continue to pose risks to the disinflation process. It added that it will make its policy decisions on a meeting by meeting basis that’s based on the inflation outlook. Next meeting is July 24 and a cut then is possible is disinflation continues.
Czech Republic reports June CPI data Friday. Headline is expected at 2.9% y/y vs. 2.4% in May. If so, it would accelerate for the second straight month to the highest since December and nearing the top of the 1-3% target range. Czech National Bank releases the minutes to its June 25 meeting Friday. At that meeting, the central bank voted unanimously to keep the policy rate steady at 3.50% and signaled it was done easing. The bank noted “The ongoing inflation pressures from the domestic economy currently preclude a further decrease in interest rates.” Governor Michl also reiterated that “at the moment it looks like rates will stay at the current level for some time.” The swaps market agrees and is pricing in steady rates over the next 12 months. Next meeting is August 7 and another hold is expected.
ASIA
China reports official June PMIs Monday. Manufacturing is expected to rise a tick to 49.6 while non-manufacturing is expected to remain steady at 50.3. Caixin reports manufacturing PMI Tuesday and is expected at 49.3 vs. 48.3 in May. Services and composite PMIs will be reported Thursday, with services expected to fall two ticks to 50.9. China’s economic recovery remains fragile, and we expect more stimulus measures in the second half of the year.
Indonesia reports June CPI data Tuesday. Headline is expected at 1.81% y/y vs. 1.60% in May, while core is expected at 2.42% y/y vs. 2.40% in May. If so, headline would remain below the 2-4% target range. At the last meeting June 18, Bank Indonesia kept rates steady at 5.5%. Governor Warjiyo said “BI will continue to monitor the scope for reducing the BI rate to support economic growth,” adding that the timing will depend on global conditions and rupiah stability. Indeed, he stressed that “BI is highly committed to maintaining the exchange rate of the rupiah.” Of note, Bloomberg consensus sees a 25 bp cut in Q3 and another 25 bp cut in Q4 that would see the policy rate end the year at 5.0%. Next meeting is July 16 and a cut then is possible if the rupiah is stable.
Korea reports June CPI data Wednesday. Headline is expected at 2.1% y/y vs. 1.9% in May, while core is expected to remain steady at 2.0% y/y. If so, headline would remain near the 2% inflation target. At the last meeting May 29, Bank of Korea cut rates 25 bp to 2.5% noted that “The domestic economy is expected to see a marked slowdown in growth this year, even as inflation remains on a stable trajectory. Uncertainty surrounding the future growth path also remains elevated.” Governor Rhee said the bank would consider more rate cuts if the 2025 growth outlook falls more, adding that four of the six members of the board were open to a cut over the next three months. Rhee also said there is a chance of larger cuts in the future. The swaps market is pricing in 25 bp of total easing over the next 12 months that would see the policy rate bottom near 2.25%. Next meeting is July 10 and a hold seems likely if inflation picks up.
Philippines reports June CPI data Friday. Headline is expected at 1.5% y/y vs. 1.3% in May. If so, headline would accelerate for the first time since December but would remain well below the 2-4% target range. At the last meeting June 19, the central bank cut rates 25 bp to 4.75% and Governor Remolona said “If things remain on track, we will probably cut once more.” The bank also cut its 2025 inflation forecast to 1.6% vs. 2.4% previously, citing slower food inflation and lower oil prices as the major factors. However, it forecasts 2026 inflation at 3.4% and 2027 at 3.3%. Next meeting is August 28 and another cut is possible then. The swaps market is pricing in only one more 25 bp cut over the next 12 months.
