EM FX

Research evidence excerpt

EM FX

the start of a much bigger dollar

move yet. US payrolls are due next week, and there is plenty of uncertainty around the Middle

East and oil as per the move post Trump comments yesterday evening. This should limit any

appetite to chase the dollar weakness, but we are still happy to hold long Em fx positions

selectively. Our Türkiye view is unchanged, as we remain long TRY and continue to see little

prospect of a short term shift in the FX framework. Real TRY appreciation remains an

important anchor for financial stability and disinflation at the moment. Oil remains the main

risk given the continued back and forth in the headlines. A sustained move higher will

definitely worsen the inflation and CA outlook, and would raise the risk of a faster fx pace. A

softer dollar would help, but the direction of energy prices remains more important than the

immediate post FOMC move in the broad dollar. We still expect the CBT to use reserves when

needed to absorb offshore outflows and keep the currency stable. The distinction between

offshore and domestic fx demand is still important, as sustained move by retail clients would be

a concern. Recent deposit data have been mixed, but there is still no clear sign of a persistent

shift away from TRY. At the same time, the authorities are likely to keep using periods of

stronger inflows to rebuild reserve buffers, as they appeared to do earlier this week. That also

helps explain why USDTRY can remain close to state bank offers even when offshore inflows

into TRY are persistent, as some of those inflows are effectively being absorbed through reserve

accumulation. Overall, we remain comfortable staying long TRY. FOMC decision is a relief for

high yielding EM FX, but it’s hard to expect an immediate rush back into EM carry with