EM FX was mostly weaker as the broad dollar rally continued. CLP, PEN, and CZK outperformed while MXN, IDR, and PHP underperformed. Strong U.S. data and more hawkish Fed expectations remain in play this week, while market sentiment remains very fragile. This backdrop should keep EM under pressure.

AMERICAS

Mexico reports mid-April CPI data Wednesday. Headline is expected at 4.50% y/y vs. 4.37% previously, while core is expected at 4.38% y/y vs. 4.41% previously. If so, it would be the highest since mid-January and further above the 2-4% target range. At the last meeting March 21, Banco de Mexico started the easing cycle with a 25 bp cut to 11.0% and signaled a data-dependent path. Recent peso weakness and rising inflation argue for caution going forward. The market is pricing in 100 bp of easing over the next year vs. 200 bp seen in March. Next meeting is May 9 and whether a cut is possible will depend in large part on the peso. February GDP proxy will be reported Monday and is expected at 2.70% y/y vs. 1.99% in January. March trade data will be reported Friday.

Brazil reports mid-April IPCA inflation Friday. Headline is expected at 3.86% y/y vs. 4.14% in mid-March. If so, it would be the lowest since mid-July 2023 and further within the 1.5-4.5% target range. At the last meeting March 20, COPOM cut rates 50 bp to 10.75% and signaled a similar cut at the next meeting May 8 before slowing the pace. However, recent BRL weakness warrants caution going forward. The market is pricing in a 25 bp cut in May with low odds of another cut after that. Back in March, markets were pricing in a terminal rate of 9.5%.

EUROPE/MIDDLE EAST/AFRICA

Bank of Israel publishes its minutes Monday. At the April 8 meeting, it kept rates steady and saw the policy rate at 3.75% in Q1 2025. Governor Yaron said “In view of recent developments, which indicate a substantial increase in the geopolitical uncertainty, the Monetary Committee decided to side with caution and kept the interest rate unchanged.” Since then, inflation accelerated to 2.7%, inflation expectations picked up to 3.0%, and the shekel has weakened 4%. Next meeting is May 27 and another hold then seems likely. The market is pricing in only one more cut over the next year, which is more hawkish than the central bank’s forward guidance.

National Bank of Hungary meets Tuesday and is expected to cut rates 50 bp to 7.75%. At the last meeting March 26, the bank cut rates 75 bp to 8.25% and Deputy Governor Virag said “in the second quarter, the rate-cut pace will slow”, adding that market expectations for a policy rate of 6.5-7.0% by mid-year were “realistic.” This would imply another 50 bp of cuts at the May and June policy meetings, bringing the policy rate to 6.75% by mid-year. However, ongoing forint weakness will make such easing difficult and the market sees the rate then at 7.5%.

Turkey central bank meets Thursday and is expected to keep rates steady at 50.0%. At the last policy meeting March 21, the bank delivered a hawkish surprise and hiked rates 500 bp to 50.0% vs. no change expected. With inflation still accelerating, we see risks that the central bank delivers another hawkish surprise this week. In March, headline CPI quickened to 68.50% y/y vs. 67.07% in February and core CPI surged to a new high of 75.21% vs. 72.89% in February. The market is pricing in 275-300 of further tightening over the next three months.

ASIA

Korea reports trade data for the first twenty of April Monday. Q1 GDP data will be reported Thursday and growth is expected at 2.5% y/y vs. 2.2% in Q4. The recovery is sluggish but Bank of Korea cannot cut rates anytime soon due to won weakness. Next meeting is May 23 and rates are likely to be kept steady at 3.5%. Of note, the market is starting to price in low odds of one more hike over the next six months. If the won continues to weaken, those odds are likely to rise.

Taiwan reports March export orders Monday. Orders are expected at 4.2% y/y vs. -10.4% in February. If so, this would be the strongest reading since June 2022 and would argue for further strength in exports. IP will be reported Tuesday and is expected at 7.5% y/y vs. -1.1% in February.

Singapore reports March CPI Tuesday. Headline is expected at 3.0% y/y vs. 3.4% in February, while core is expected at 3.4% y/y vs. 3.6% in February. At the April 12 meeting, the Monetary Authority of Singapore left policy unchanged and noted “Core Inflation is likely to remain elevated in the earlier part of the year but should stay on its broadly moderating path and step down in Q4, before falling further into 2025. Accordingly, current monetary policy settings remain appropriate.” March IP will be reported Friday and is expected at -1.0% y/y vs. 3.8% in February.

Bank Indonesia meets Wednesday and is expected to keep rates steady at 6.0%. However, a third of the analysts polled by Bloomberg look for a 25 bp hike to 6.25%. At the last meeting March 20, the bank kept rates steady, but the risk is that it delivers a hawkish surprise this week. BI was forced to intervene last week to curtail the sharp decline in IDR. However, the depreciation in IDR is largely a reflection of broad USD strength and rising U.S. Treasury yields. As such, any BI rates hikes will slow rather than reverse the uptrend in USD/IDR.

Malaysia reports March CPI Thursday. Headline is expected at 2.1% y/y vs. 1.8% in February. If so, it would be the highest since June 2023. At the last meeting March 7, Bank Negara kept rates steady at 3.0% but the exchange rate was clearly seen as a risk as the bank noted “the ringgit is currently undervalued, given Malaysia's economic fundamentals and growth prospects.” This suggests the bank may eventually have to hike rates to support the ringgit. Indeed, the market is starting to price in low odds of a hike over the next year. If the ringgit continues to weaken, those odds should rise.