Frontier FX was mostly firmer last week as the dollar came under broad-based pressure. KZT, HRK, and RSD outperformed while VND, UAH, and BDT underperformed. At the heart of the dollar weakness was a combination of delayed tariffs and weak retail sales data. However, the knee-jerk selling ignored the elevated inflation data that suggest the Fed will not be cutting rates anytime soon. We continue to look through the noise and see the dollar rally resuming on the strong underlying fundamental story. That said, the dollar may not see any relief until Friday, when global February PMI readings should underscore the divergence theme.

EUROPE/MIDDLE EAST/AFRICA

Serbia reports January CPI Wednesday. Headline is expected to remain steady at 4.3% y/y. If so, it would remain within the 1.5-4.5% target range. Last week, the central bank kept rates steady at 5.75%, as expected. After starting an easing cycle with a 25 bp cut last June and then following up with 25 bps cut in both July and September, the central bank has since been on hold. Similar to the statement from its January meeting, the bank said the February hold was due to “the rise in geopolitical tensions, stronger protectionism and fragmentation of the global market.” However, this time the bank added that inflation should slow around the middle of the year due to the impact of “restrictive” monetary conditions and weaker global price pressures. This suggests it may resume easing in H2.