Frontier Preview for the Week of February 23, 2025

February 23, 2025

Win Thin

Frontier FX was mixed last week as the dollar’s comeback Friday erased some of the gains. UYU, BDT, and UAH outperformed while KZT, GHC, and VND 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, Frontier FX should remain under pressure.

EUROPE/MIDDLE EAST/AFRICA

Iceland reports February CPI data Thursday. Last month, CPI inflation slowed to 4.6% y/y vs. 4.8% in both November and December. This was the lowest since October 2021 and nearing the 1-4% target range. At the last meeting February 5, Sedlabanki cut rates 50 bp to 8.0%. Governor Jonsson said “It’s quite clear that we might have some room for further cuts, but from the spring onwards we will just have to see how inflation expectations develop.” Next meeting is March 19 and if disinflation continues, another 50 bp cut is possible then.

Kenya reports February CPI data Friday. Last month, CPI came in at 3.3% y/y vs. 2.8% expected and 3.0% in December and remains well below the midpoint of the 2.5-7.5% target range. At the last meeting February 5, the central bank cut rates 50 bp to 10.75%. Governor Thugge said the cut was “supported by a low and stable core inflation, low energy prices inflation, and exchange rate stability” as well as expectations that inflation would remain below the 5% midpoint of the target range. Next meeting is April 7 and if inflation continues to pick up, it could keep the bank cautious and limit it to another 50 bp cut.

ASIA

Sri Lanka reports February CPI data Friday. Outright deflation has been seen since September, with the -4.0% y/y reading in January the deepest so far. At the last meeting January 29, the central bank kept rates steady at 8.0% but said that its “latest projections indicate deeper deflation than previously projected, mainly due to the more than anticipated downward adjustment in the electricity tariff announced in January 2025.” Next meeting is March 26 and if deflation persists, the bank seems likely to cut rates then.

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