Frontier Preview for the Week of June 8, 2025

June 08, 2025

Here's a look at the main drivers in Frontier Markets this week.

Frontier FX was mostly firmer last week due to broad dollar weakness. UYU, BDT, and RSD outperformed while CRC, VND, and JMD underperformed. The dollar got a bit of a reprieve Friday after the better than expected jobs data, but we expect weakness to resume this week as inflation data come into focus. For now, the U.S. economy remains relatively resilient but higher inflation readings due to tariffs may start to bite. We also see risks of negative trade-related headlines this week that could further weigh on the greenback. While the outlook for Frontier Markets remains cloudy due to slowing global growth, Frontier FX is likely to continue benefiting from ongoing dollar weakness.

EUROPE/MIDDLE EAST/AFRICA

Kenya central bank meets Tuesday. Markets are split between no change and a 50 bp cut. At the last meeting April 8, the bank delivered a dovish surprise and cut rates 75 bp to 10.0% vs. 50 bp expected. Governor Thugge said “Overall inflation is expected to remain below the midpoint of the target range in the near term, supported by a low core inflation, lower food inflation, stable energy prices and continued exchange rate stability.” Since then, inflation decelerated in May to 3.8% y/y vs. 4.1% in April and remains below the midpoint of the 2.5-7.5% target range. With inflation cooling, the bank should deliver another cut this week.

Romania reports May CPI data Thursday. Headline is expected at 5.30% y/y vs. 4.85% in April. If so, it would be the highest since July 2024 and would move further above the 1.5-3.5% target range. At the last meeting May 16, the central bank kept rates steady at 6.5% for the sixth straight meeting as markets were jittery ahead of the presidential election. Since then, the centrist EU-friendly Nicolas Dan won the vote and has prompted the four pro-EU parties to start coalition talks this week. An improved political outlook should help boost Romanian assets. A firmer RON should help limit inflation but for now, the central bank is on hold until it moves back towards the target range.

Serbia central bank meets Thursday and is likely keep rates steady at 5.75%. May CPI data will be reported at the same time. In April, headline came in lower than expected at 4.0% y/y vs. 4.4% in March. This was the lowest since June 2024 and moved further within the 1.5-4.5% target range. At the last meeting May 9, the bank kept rates steady at 5.75% and said that “Inflation at home greatly depends on developments in global commodity and financial markets which are currently highly volatile amid uncertainty related to trade policies of leading global economies.” If disinflation continues, we see some chance of a dovish surprise this week.

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