EM FX was mixed last week, reflecting the dollar’s mixed performance against the majors. BRL, COP, and MXN outperformed while KRW, RON, and CLP underperformed. With President-elect Trump likely to follow through with his plans to enact significant tariffs, we expect EM to bear the brunt. Furthermore, the inflationary impulses should also keep the Fed from cutting rates as much as they otherwise would have, which should boost the dollar. Bottom line: EM FX is likely to remain under pressure.
AMERICAS
Brazil reports September consolidated budget data Monday. A primary deficit of -BRL7.3 bln is expected vs. -BRL21.4 bln in August. Central bank minutes will be released Tuesday. Last week, the bank hiked rates 50 bp to 11.25% and made it clear that it was responding to loose fiscal policy as it warned “The Committee stresses that a credible fiscal policy committed to debt sustainability, with the presentation and execution of structural measures for the fiscal budget, will contribute to the anchoring of inflation expectations and to the reduction in the risk premia of financial assets, therefore impacting monetary policy.” The market is pricing in 250 bp of further easing over the next 12 months that would see the policy rate peak at 13.75%. September retail sales data will also be reported Tuesday and are expected at 3.5% y/y vs. 5.1% in August.
Banco de Mexico meets Thursday and is expected to cut rates 25 bp to 10.25%. At the last meeting September 26, Banco de Mexico cut rates 25 bp as expected to 10.50%. The vote was 4-1, with the lone dissent in favor of steady rates. The bank warned that the balance of risks to growth were to the downside and said the inflation environment would permit further cuts ahead. Since then, core CPI inflation eased to a four-year low of 3.8% y/y in October. The swaps market is pricing in 125 bp of total easing over the next 12 months followed by another 25-50 bp cut over the subsequent 12 months that would see the policy rate bottom between 8.75-9.0%. Ahead of the decision, September IP will be reported Monday and is expected at 0.3% y/y vs. -0.9% in August.
EUROPE/MIDDLE EAST/AFRICA
Czech Republic reports October CPI Monday. Headline is expected to pick up two ticks to 2.8% y/y. If so, it would be the highest since April and nearing the top of the 1-3% target range. Last week, the Czech National Bank cut rates 25 bp to 4.0% but signaled that the easing cycle may be nearing an end. Governor Michl said “Most of the bank board is now focusing on the risk of elevated inflation in the future. We simply need to remain strict to ensure that inflation really goes back down to 2% next year.” He added that the bank will approach further easing with “great caution” and that it may pause or end the cycle “in the months ahead.” The swaps market is pricing in 50 bp of further easing over the next 12 months.
Israel reports October CPI data Friday. Headline is expected to remain steady at 3.5% y/y. At the last meeting October 9, Bank of Israel left rates steady at 4.5%. It was a hawkish hold as Governor Yaron said “The current interest-rate level is sufficiently restrictive. However, we are data dependent and if it rises more than expected we may definitely raise interest rates.” Furthermore, the bank’s research department saw the policy rate still at 4.5% in Q3 2025 vs. 4.25% in Q2 2025 seen at the July 8 meeting. The swaps market is pricing in steady rates over the next six months followed by 25 bp of easing over the subsequent six months.
ASIA
China reports October new loan data sometime this week. We expect money and new loan data to pick up in October, reflecting the People’s Bank of China’s pump-priming measures since late September. Recall, the PBOC cut the policy-relevant 7-day reverse repurchase rate 20 bp to 1.50%, slashed banks’ reserve requirement ratio by 50 bp, reduced the downpayment ratio on second homes to 15% from 25%, lowered rates for existing mortgages, and increased central bank support for buying unsold homes. Over the weekend, CPI and PPI came in weaker than expected at 0.3% y/y and -2.9% y/y, respectively, and underscores that deflationary risks remain high and further easing is warranted. China reports October IP, retail sales, FAI, property investment, and home prices Friday and activity is expected to pick up modestly.
India reports October CPI and September IP Tuesday. Headline inflation is expected at 5.90% y/y vs. 5.49% in September, while IP is expected at 2.5% y/y vs. -0.1% in August. WPI will be reported Thursday and is expected at 2.35% y/y vs. 1.84% in September. At the last meeting October 9, Reserve Bank of India left rates steady at 6.5%. However, it was a dovish hold as the bank voted to move its stance to “neutral” from “withdrawal of accommodation” previously. While it’s clear that the bank is setting the table for a rate cut, it probably won’t come at the next meeting December 6 as Governor Das said last week that “A change in stance doesn’t mean there will be a rate cut in the very next meeting.’’ The swaps market is pricing in steady rates over the next three months followed by 25 bp of easing over the subsequent three months. Looking ahead, the market sees 50 bp of total easing over the next 12 months that would see the policy rate bottom at 6.0%.
