EM FX was mixed last week as the dollar’s comeback Friday erased some of the gains. COP, KRW, and MYR outperformed while CLP, CZK, and BRL underperformed. Weak U.S. data and news of a potentially new virus discovered in Wuhan led to a bout of risk off trading Friday that led to a haven bid for USD. JPY, and CHF. The lack of any top-line data until late in the week suggests that risk off impulses could carry over into the early part of this week. If so, EM FX should remain under pressure.
AMERICAS
Mexico reports mid-February CPI data Monday. Headline is expected at 3.77% y/y vs. 3.48% previously, while core is expected at 3.61% y/y vs. 3.61% previously. If so, headline would accelerate for the first time since October but would remain within the 2-4% target range. Minutes of the February 6 meeting were dovish, which was no surprise given the 50 bp cut that was delivered then. The bank said it would consider weak economic activity in future policy decisions, adding that another 50 bp cut can be considered at the next meeting March 27. The swaps market is pricing in another 150 bp of easing over the next 12 months that would see the policy rate bottom near 8.0%.
Brazil reports mid-February IPCA inflation Tuesday. Headline is expected at 5.10% y/y vs. 4.50% in mid-January. If so, it would be the first acceleration since November. Headline would also be the highest since September 2023 and move back above the 1.5-4.5% target range. At the last policy meeting January 29, the central bank hiked rates 100 bp for the second straight time to 13.25% and said a similar hike would be seen at the next meeting March 19. Looking ahead, the swaps market is pricing in 150 bp of total easing over the next 12 months that would see the policy rate peak near 14.75%.
Peru reports February CPI data Saturday. Headline is expected at 1.46% y/y vs. 1.85% in January. If so, it would be the lowest since September 2018 and move closer to the bottom of the 1-3% target range. At the last meeting February 13, the bank left rates steady after cutting rates 25 bp to 4.75% at the January 9 meeting. It justified a more cautious stance by noting that “Uncertainty remains over the impact of trade policies, as well as risks derived from international conflicts.” Since last fall, the bank has been cutting rates at every other meeting and so we see potential for a 25 bp cut at the next meeting March 13. However, much will depend on the global backdrop then.
EUROPE/MIDDLE EAST/AFRICA
Bank of Israel meets Monday and is expected to keep rates steady at 4.50%. At the last meeting January 6, the bank also kept rates steady and Governor Yaron said that “To lower rates now would be similar to trying to take out a fire using fuel. Because labor shortages are a major obstacle, lowering rates will increase demand without increasing supply, so it will just bring on price rises.” However, it was ultimately a dovish hold as the updated rate path saw the policy rate at 4.0-4.25% in Q4 2025 vs. 4.5% seen in 3Q 2025 at the October 9 meeting. It appears that the bank is teeing up the start of an easing cycle late this year. The swaps market is pricing in 25 bp of easing over the next six months followed by another 50 bp over the subsequent six months that would see the policy rate bottom near 3.75%.
National Bank of Hungary meets Tuesday and is expected to keep rates steady at 6.5%. At the last meeting January 28, the bank kept rates steady for the fourth straight month and updated its policy guidance as it warned that “risks to the outlook for inflation warrant the maintenance of tight monetary conditions.” This suggests the bar for additional rate cuts is high. Deputy Governor Virag said tight monetary conditions were necessary as upside risks have materialized, adding that “This is a new situation in a qualitative sense.” Despite this hawkish guidance, the swaps market is still pricing in a 25 bp cut over the next three months.
South Africa reports January CPI data Wednesday. Headline is expected to pick up two ticks to 3.2% y/y while core is expected to fall a tick to 3.5% y/y. If so, headline would accelerate for the third straight month but remain near the bottom of the 3-6% target range. At the last meeting January 30, South African Reserve Bank cut rates 25 bp to 7.5% by a 4-2 vote, with the dissents in favor of steady rates. Governor Kganyago said that “The MPC would like to emphasize that its decisions will be made on a meeting-by-meeting basis, with no forward guidance and no pre-commitment to any specific rate path.” Its model saw the policy rate bottoming near 7.25% next year, little changed from November. The swaps market sees the policy rate bottoming near 7.25% over the next six months.
ASIA
Singapore reports January CPI data Monday. Headline is expected at 2.3% y/y vs. 1.6% in December, while core is expected at 1.5% y/y vs. 1.8% in December. While the Monetary Authority of Singapore does not have an explicit inflation target, low price pressures allowed it to ease policy at its last meeting January 24. Next meeting is in April and if price pressures continue to climb, the MAS is likely to remain on hold.
Bank of Korea meets Tuesday and is expected to cut rates 25 bp to 2.75%. At the last meeting January 16, the bank delivered a hawkish surprise and kept rates steady at 3.0% vs. an expected 25 bp cut. It said that FX uncertainty was one of the reasons for the hold. Governor Rhee later added that political stability was most important for the economy now and estimated that the exchange rate was about 30 won weaker due to political turmoil. The swaps market is pricing in only 25 bp of total easing over the next 12 months that would see the policy rate bottoming near 2.75%.
Bank of Thailand meets Wednesday and is expected to keep rates steady at 2.25%. However, a couple of analysts polled by Bloomberg look for a 25 bp cut to 2.0%. At the last meeting December 18, the bank kept rates steady and Assistant Governor Sakkapop Panyanukul said “We remain neutral - we are not stepping on the brake and we are not accelerating. Over the short term, the economic recovery remains on track, but we see higher risks ahead.” The swaps market is still pricing in 50 bp of easing over the next 12 months that would see the policy rate bottom near 1.75%.
China reports official February PMIs Saturday. Manufacturing is expected to rise nearly a full point to 50.0, while services is expected to rise a tick to 50.3. If so, the composite should move further above the key 50 boom/bust level after it notched the lowest reading since August last month at 50.1. We remain skeptical of any true bounce in the numbers until policymakers address deflation risks brought about by the huge debt overhang and the bursting property bubble.
