Frontier FX was mixed even though the dollar was broadly weaker against the majors last week. The CEE currencies outperformed while PHP, ZAR, and CLP underperformed. The dollar gained Friday at the expense of EM FX and other risk assets as Middle East tensions ratcheted up. Some haven bid may be seen early this week, but we would look to fade that dollar strength as the underlying downtrend remains intact. The labor market is starting to crack and we look for a dovish hold from the Fed this week. As a result, the Frontier FX rally should resume.

EUROPE/MIDDLE EAST/AFRICA

Nigeria reports May CPI data. April headline inflation came in at 23.7% y/y vs. 24.2% in March, with progress showing signs of leveling off. At the last meeting May 20, the central bank kept rates steady for the second straight time. Over that tightening cycle, the bank hiked rates from 11.50% to 27.50% currently even as inflation rose from 15.9% y/y in March 2022 to peak at 34.6% y/y in November 2024. Next policy meeting is July 22. Since inflation remains somewhat elevated, another hold seems likely.

ASIA

Pakistan central bank meets Monday and is expected to keep rates steady at 11.0%. However, the market is split as over a third of the 30 analysts polled by Bloomberg look for either a 50 or 100 bp cut. At the last meeting May 5, State Bank of Pakistan delivered a dovish surprise and cut rates 100 bp to 11.0% vs. no change expected. It said that “heightened global uncertainty surrounding trade tariffs and geopolitical developments could pose challenges” for the economy. Since then, inflation accelerated to 3.5% y/y, the highest since December but still well below the 6% target. As such, we see odds of a 50 bp cut this week.