EM FX was soft across the board last week despite a mixed dollar performance against the majors. ZAR was the only EM currency to gain after the ANC and DA agreed on a coalition, while COP, HUF, and PLN were the worst EM performers last week. The dollar smile remains in play and so EM FX is likely to remain under pressure from a hawkish Fed and ongoing political uncertainty in the eurozone.

AMERICAS

Chile central bank meets Tuesday and is expected to cut rates 25 bp to 5.75%. However, the market is split. Of the 12 analysts polled by Bloomberg, 1 sees steady rates, 7 see a 25 bp cut, and 4 see a larger 50 bp cut. At the last meeting May 23, the bank cut rates 50 bp to 6.0% by a unanimous vote and said that the policy rate would continue to fall. Inflation in Chile has been sticky around 4% since April, while the peso has weakened nearly 6% since that last decision. This argues for caution by the central bank. The market is pricing in 125 bp of total easing over the 12 months that would see the policy rate bottom at 4.75%.

Brazil COPOM meets Wednesday and is expected to keep rates steady at 10.5%. At the last meeting May 8, the bank cut rates 25 bp but gave no forward guidance as it had done at previous meetings. Since then, inflation has accelerated, the fiscal outlook has deteriorated, and the real has weakened nearly 7%. Of note, the swaps market is pricing in 100-125 bp of tightening over the next 12 months on Brazil’s worsening fiscal outlook. President Lula indicated last week he is not considering spending cuts to address growing fiscal concerns.

EUROPE/MIDDLE EAST/AFRICA

National Bank of Hungary meets Tuesday and is expected to cut rates 25 bp to 7.0%. However, nearly a quarter of the analysts polled by Bloomberg look for a larger 50 bp cut. At the last meeting May 21, the bank cut rates 50 bp and Deputy Governor Virag noted that the base rate will be between a 6.75-7.00% by end-June, adding that room for rate cuts in the second half of this year is “very, very limited.” The swaps market sees the policy rate at 7.00% over the next three months, falling to 6.75% over the next 12 months.

South Africa reports May CPI and April retail sales Wednesday. Headline is expected to remain steady at 5.2% y/y, while core is expected to fall a tick to 4.5% y/y. At the last meeting May 30, SARB left rates unchanged at 8.25% but forecast inflation to hit the 4.5% target in Q2 2025 vs. end-2025 seen in March. The market is pricing in 25 bp of easing over the next three months. Elsewhere, sales are expected at 1.5% y/y vs. 2.3% in March. The political outlook has improved as President Ramaphosa will remain in his post after the ANC/DA coalition deal and so the rand should recover further.

ASIA

PBOC is expected to keep its 1-year MLF rate unchanged at 2.5% Monday. China reports May new and used home prices, residential property sales, IP, retail sales, FAI, and property investment Monday. IP is expected at 6.2% y/y vs. 6.7% in April, sales are expected at 3.0% y/y vs. 2.3% in April, FAI is expected to remain unchanged at 4.2% YTD, and property investment is expected at -10.0% YTD vs. -9.8% YTD in April. China commercial banks are expected to keep their key Loan Prime Rates unchanged Thursday. Some further easing is likely in H2 but until tough structural reforms are enacted, the economy is likely to remain sluggish.

Bank Indonesia meets Thursday and is expected to keep rates steady at 6.25%. A handful of analysts polled by Bloomberg look for a 25 bp hike to 6.50%. We see risks of a hawkish surprise in order to stem the decline in the rupiah and help prevent any imported inflation. BI noted recently that it expects USD/IDR to remain manageable below 16,300 but USD/IDR is currently higher at 16,400. It last hiked rates 25 bp at the April 24 meeting to help support the rupiah but it has weakened 2% since then.