Frontier FX was mixed last week despite broad dollar weakness against the majors. KZT, UAH, and LKR outperformed while VND, GHC, an UYU underperformed. The dollar rallied on Friday on reports that Trump would announce reciprocal tariffs this week on all U.S. trading partners. It seems that rather than announce universal tariffs, Trump would instead put “the exact same tariff” on those countries that are levying tariffs on U.S. goods. Reciprocal tariffs, along with U.S. inflation and retail sales data this week, should keep the Fed on hold for the foreseeable future even as other central banks are easing. These drivers should keep downward pressure on Frontier FX.
EUROPE/MIDDLE EAST/AFRICA
Serbia central bank meets Thursday and is expected to keep rates steady at 5.75%. 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. At the last meeting January 10, the bank warned that “It’s necessary to continue with a cautious monetary policy bearing in mind uncertainty in the international environment, primarily due to heightened geopolitical tensions and a fragmentation of the world market.” Since those conditions are still in place, another hold is likely this week even though inflation is within the 1.5-4.5% target range.
National Bank of Romania meets Friday and is expected to keep rates at 6.50%. After starting an easing cycle with a 25 bp cut last May and then following up with another 25 bp cut in August, the central bank has been on hold. At the last meeting January 15, the bank unanimously decided to keep rates steady and noted that “Considerable uncertainties and risks stem from the future fiscal and income policy stance,” which was clearly referring to the fact that political uncertainty will persist until the election do-over in May. Romania also reports January CPI data Friday. Headline is expected at 4.90% y/y vs. 5.14% in December. If so, it would be the first deceleration since September but remain above the 1.5-3.5% target range, which would justify another hold this week.
