EM FX was mixed last week despite the dollar’s broad strength against the majors. KRW, PHP, an RON outperformed while BRL, COP, and MXN underperformed. The U.S. elections and the FOMC meeting will dominate the news stream this week but looking through these events, we believe the fundamental economic backdrop continues to favor the dollar. Latin American currencies will be particularly vulnerable to a Trump victory.

AMERICAS

Columbia central bank releases its quarterly inflation report Tuesday. It then releases its minutes Wednesday. At last week’s meeting, the bank cut rates 50 bp as expected to 9.75%. The vote was 4-3, with the dissents in favor of a larger 75 bp cut. However, the bank noted that the weaker COP exchange rate and uncertainty around the stability of public finances could limit the bank’s ability to further ease monetary policy at the current pace. The market is pricing in 150 bp of easing over the next 12 months that would see the policy rate bottom near 8.25%. Colombia reports October CPI data Friday. Headline is expected at 5.72% y/y vs. 5.81% in September, while core is expected at 6.45% y/y vs. 6.55% in September. If so, headline would be the lowest since December 2021 but still well above the 2-4% target range. Next central bank meeting is December 20 and another 50 bp cut seems likely.

Brazil COPOM meets Wednesday and is expected to hike rates 50 bp to 11.25%. At the last meeting September 18, the bank started the tightening cycle by hiking rates 25 bp as expected to 10.75% and warned that “the risks to its inflation scenarios are tilted to the upside.” Indeed, IPCA inflation has been sticky near the top-end of the 1.5-4.5% target band since July. Brazil reports October IPCA inflation Friday. Headline is expected at 4.74% y/y vs. 4.42% in September. If so, headline would be the highest since October 2023 and move above the 1.5-4.5% target range. The swaps market is pricing in 300-325 bp of total tightening over the next 12 months that would see the policy rate peak between 13.75-14.00%.

Mexico reports October CPI data Thursday. Headline is expected at 4.74% y/y vs. 4.58% in September, while core is expected at 3.85% y/y vs. 3.91% in September. If so, headline would accelerate for the first time since July and move further above the 2-4% target range, while core would be the lowest since January 2021. 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. Next meeting is November 14 and another 25 bp cut seems likely. The swaps market is pricing in 100 bp of total easing over the next 12 months followed by another 25 bp cut over the subsequent 12 months that would see the policy rate bottom near 9.25%.

Peru central bank meets Thursday and is expected to keep rates steady at 5.25%. At the last meeting October 10, the central bank delivered a hawkish surprise and kept rates steady at 5.25% vs. an expected 25 bp cut to 5.0%. It warned that inflation would rise in Q4 due to base effects but would remain in the target range. Recently, the bank’s chief economist Armas said the bank will continue cutting rates gradually and that decisions would be based on core inflation, inflation expectations, and economic growth. Inflation data for October support the case for the central bank to resume cutting rates this week. Headline picked up slightly to 2.01% y/y vs. 1.78% in September and core eased to 2.50% y/y vs. 2.64% in September, the lowest since August 2021.

Chile reports October CPI data Friday. Headline is expected at 4.3% y/y vs. 4.1% in September. If so, headline would move further above the 2-4% target range. At the last meeting October 17, the central bank cut rates 25 bp as expected to 5.25% and said “The key rate will see further reductions to meet its neutral level. This will occur at a pace that will consider the evolution of the macroeconomic scenario and its implications for inflation’s trajectory.” Next meeting is December 17 and another 25 bp cut to 5.0% seems likely. The swaps market is pricing in 75 bp of total easing over the next 12 months that would see the policy rate bottom near 4.50%. Ahead of CPI, October trade data will be reported Thursday.

EUROPE/MIDDLE EAST/AFRICA

Turkey reports October CPI Monday. Headline is expected at 48.30% y/y vs. 49.38% in September, while core is expected at 47.80% y/y vs. 49.10% in September. If so, headline would be the lowest since July 2023 but still well above the 3-7% target range. At the last meeting October 17, the central bank kept rates steady as expected at 50.0% and delivered a hawkish message as it expressed concerns about “uncertainty regarding the pace of improvement in inflation.” Next meeting is November 21 and rates are likely to be kept steady again. Forward guidance will be key in determining whether a cut at the December 26 meeting is possible. The central bank publishes its quarterly inflation report Friday and the updated forecasts will be key. In the last report back in August, the bank kept its end-2024 and end-2025 inflation forecasts unchanged at 38% and 14%, respectively. The market is pricing in 450 bp of easing over the next three months.

Hungary central bank releases its minutes Wednesday. At that October 22 meeting, the bank kept rates steady as expected at 6.5% and said, "In the Council's assessment, re-intensifying geopolitical tensions, volatile financial market developments and the risks to the outlook for inflation warrant a pause in cutting interest rates." Deputy Governor Kandracs stressed that “We’re not at all afraid to maintain the current base interest level for an extended period.” Next meeting is November 19 and if the forint remains under pressure, another hold is likely. The swaps market is pricing in no more rate cuts in this cycle. September IP will be reported Wednesday and is expected at -4.4% y/y vs. -4.1% in August. Retail sales will be reported Thursday and are expected at 3.6% y/y vs. 4.1% in August.

National Bank of Poland meets Wednesday and is expected to keep rates steady at 5.75%. Governor Glapinski will hold his post-meeting press conference Thursday. Minutes from the October 2 meeting will be published Friday. At that meeting, the bank kept rates steady but Governor Glapinski continued to tilt more dovish and said a cut could come in March, April, or even earlier. He added that under the optimistic scenario, the central bank’s March forecasts would show inflation has stabilized and may fall back to the 2.5% target. The market is pricing in steady rates over the next three months followed by 25 bp of easing over the subsequent three months and 50 bp of easing over the subsequent six months.

Czech National Bank meets Thursday and is expected to cut rates 25 bp to 4.0%. At the last meeting September 25, the bank cut rates 25 bp as expected to 4.25% by a 6-1 vote, with the dissent in favor of a larger 50 bp cut. Governor Michl said, “The vast majority of the bank board agreed that there was need for caution.” Indeed, Vice Governor Zamrazilova signaled last week that she could favor pausing the easing cycle noting “the inflationary risks to fulfilling the target next year are prevailing at the moment, and I see that as a reason for caution.” The swaps market is pricing in around 50 bp of total easing over the next 12 months followed by another 25 bp over the subsequent 12 months that would see the policy rate bottom near 3.5%. Ahead of that, September IP will be reported Wednesday. Retail sales will be reported Thursday.

ASIA

Korea reports October CPI Tuesday. Headline is expected at 1.4% y/y vs. 1.6% in September, while core is expected at 1.9% y/y vs. 2.0% in September. If so, headline would be the lowest since February 2021 and further below the 2% target. At the last meeting October 11, the Bank of Korea started the easing cycle with a 25 bp cut to 3.25% but there was one dissent in favor of steady rates. Governor Rhee said five board members saw steady rates over the next three months, while one was open to another cut. Since that meeting, the data have been coming in soft. Next meeting is November 28 and risks of a follow-up cut have risen. The swaps market sees 50 bp of total easing over the next 12 months that would see the policy rate bottom near 2.75%.

Philippines reports October CPI Tuesday. Headline is expected at 2.4% y/y vs. 1.9% in September. If so, headline would accelerate for the first time since July and move back within the 2-4% target range. At the last meeting October 16, the central bank cut rates 25 bp as expected to 6.0%. Governor Remolona said another 25 bp cut in December was possible, adding that 100 bp of easing in 2025 was possible. Next meeting is December 19 and another 25 bp cut to 5.75% seems likely. The swaps market is pricing in 225 bp of total easing over the next 12 months that would see the policy rate bottom near 3.75%. Q3 GDP data will be reported Thursday. Growth is expected at 1.7% q/q vs. 0.5% in Q2, while the y/y rate is expected at 5.7% vs. 6.3% in Q2.

China’s National People’s Congress Standing Committee meets all week. Policymakers are expected to unveil the details of their fiscal stimulus pledge following the meeting. Reuters reported that China is looking to approve over CNY10 trln (8% of GDP) of additional borrowing in the coming years to support economic activity. This is higher than the CNY6 trln (5% of GDP) figure reported by Caixin a few weeks ago. For reference, China’s 2008 fiscal bazooka totaled CNY4 trln (12.5% of GDP). The prospect of a bigger fiscal thrust out of China can offer commodity sensitive currencies support. However, piling on more debt to support a burst property bubble is not the long-term solution China needs to address its huge debt overhang and rising deflation risks.

Caixin reports October services and composite PMIs Tuesday. Services is expected to rise to ticks to 50.5. If so, the composite would likely rise a few ticks from 50.3 in September. Still, the readings would remain indicative of sluggish economic growth. China reports October trade data Thursday. Exports are expected at 4.5% y/y vs. 2.4% in September, while imports are expected at -1.5% y/y vs. 0.3% in September. Declining imports is a sign of weak domestic demand activity. Meanwhile, China cannot rely on exports to sustain a recovery in economic activity and needs to stimulate consumer spending. October CPI and PPI data will be reported Saturday local time. CPI is expected to fall a tick to 0.3% y/y while PPI is expected to rise three ticks to -2.5% y/y.

Thailand reports October CPI Wednesday. Headline is expected at 0.95% y/y vs. 0.61% in September, while core is expected at 0.80% y/y vs. 0.77% in September. If so, headline would be the highest since May and nearing the bottom end of the 1-3% target range. At the last meeting October 16, the Bank of Thailand started the easing cycle with an unexpected 25 bp cut to 2.25%. The vote was 5-2, with the two dissents in favor of steady rates. The bank stressed that the cut was not due to political pressure and added that it was not the start of an easing cycle. Next meeting is December 18 and if price pressures continue rising, steady rates seem likely. The swaps market is pricing in 50 bp of total easing over the next 12 months that would see the policy rate bottom near 1.75%.

Bank Negara Malaysia meets Wednesday and is expected to keep rates steady at 3.0%. At the last meeting September 5, the bank kept rates steady as expected at 3.0% and noted that "At the current OPR level, the monetary policy stance remains supportive of the economy and is consistent with the current assessment of inflation and growth prospects." The bank said both headline and core inflation are expected to remain below 3% but warned that the outlook remains "highly subject to the implementation of further domestic policy measures." While the bank does not have an explicit inflation target, the fact that headline inflation has remained at or below 2.0% since mid-2023 suggests it will lean more dovish in the coming months. However, the swaps market sees steady rates over the next 36 months. Malaysia reports September IP Friday and is expected at 3.5% y/y vs. 4.1% in August.

Taiwan reports October CPI Wednesday. Headline is expected at 1.80% y/y vs. 1.82% in September, while core is expected at 1.70% y/y vs. 1.79% in September. If so, headline would be the lowest since January. While the bank does not have an explicit inflation target, property market concerns should keep rates on hold for now. At the last meeting September 19, the bank kept rates steady as expected at 2.0% but tightened liquidity by raising commercial bank reserve ratios 25 bp for the second straight meeting. The bank also tightened home-buying rules for the second straight meeting, including expanding limits on borrowing to buy second homes to more regions. Next meeting is December 19 and no change is expected then. However, the swaps market is pricing in steadily higher rates over the next 36 months. October trade data will be reported Friday. Exports are expected at 9.1% y/y vs. 4.5% in September, while imports are expected at 8.9% y/y vs. 17.3% in September.