Frontier FX was mostly softer last week as the dollar mounted a broad-based recovery. UYU, BDT, and JMD outperformed while RSD, KZT, and UAH underperformed. The Fed delivered the cautious hold that we expected last week but stressed that tariff-induced inflation was likely to be transitory. This week brings March global PMI readings that will help determine if U.S. exceptionalism is indeed over.

EUROPE/MIDDLE EAST/AFRICA

Iceland reports March CPI data Thursday. In February, headline fell to 4.2% y/y, the lowest since February 2021 and nearing the 1-4% target range. At the March 19 policy meeting, Sedlabanki cut rates 25 bp to 7.75% after two straight 50 bp cuts and noted that “Although inflation has eased and inflation expectations have fallen in the recent term, inflation pressures remain, which calls for a continued tight monetary stance and caution regarding decisions going forward. This is compounded by significant global economic uncertainty.” Next policy meeting is May 21 and much will depend on the inflation trajectory then.

ASIA

Sri Lanka central bank meets Wednesday and is expected to keep rates steady at 8.0%. However, a couple of analysts polled by Bloomberg look for a cut. 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.” With deflation still deepening, we see risks of a dovish surprise this week. March CPI data will be reported Friday. In February, deflation was at a new cycle low of -4.2% y/y.