EM Edge Data Watch: The summer heat is off, for now

Research evidence excerpt

EM Edge Data Watch: The summer heat is off, for now

expected. Beyond the removal of the 2026 rate cut,

the June dot plot showed nine members anticipating hikes this year, with six projecting

two or more moves. Committee guidance also suggests that the balance of concerns

has shifted decisively toward inflation risks.

We still expect the first hike to come in September next year, but the Fed could come

under pressure to react sooner if there is a sustained rebound in job growth (today's

jobs report brings some relief) alongside surprises to the upside in core inflation. Contents

Markets have responded by pricing in a rate hike this year; a meaningful tightening

EM Edge Data Watch 1

could turn global financial conditions restrictive. The other angle is that our Global FX Economic outlook summary 5

strategy team has also increased its bullishness on the USD on US exceptionalism: Quarterly outlook summary 6

global yields, equity returns and growth. This presents an additional challenge to EM Monetary policy forecast 6

Edge central banks if their currencies come under weakening pressure vs the USD. EM Edge Economic Calendar 7

Market Watch 8

This final point is of particular relevance for EM Edge countries. After the start of the Armenia: Deficits Persist, but Inflows Do the Work 9

US‑Iran war, the rhetoric across EM Edge central banks has shifted more hawkish, Bahrain: Piecing the BoP puzzle 11

largely on inflation risks from higher energy prices and supply disruptions in oil, Bolivia: FX unification, a new step toward

stabilization 13

fertilizers, and other inputs. Exchange rate reactions, however, were benign, with Georgia: a solid fortress in the South Caucasus 16

Egypt a notable exception initially (Figure 2). Regional Commentary 19