Analysts at Bank of America (BofA) indicated that the prevailing bearish sentiment on foreign exchange (FX) in Eastern Europe, the Middle East and Africa (EEMEA) is nearing a peak, noting the Turkish lira (TRY) as an exception.
According to BofA’s flow data, there is a record high in US dollar long positions against emerging market (EM) currencies, which analysts are interpreting as a contrarian signal that EM and EEMEA FX could soon start beating expectations, potentially starting with February or March.
The report highlighted several currencies in the EEMEA region with an optimistic outlook. The Polish zloty (PLN) is expected to strengthen due to a combination of a weaker dollar, the hawkish stance of the National Bank of Poland (NBP) and positive current account and foreign direct investment (FDI) inflows. The South African rand (ZAR) is also seen as bullish, with its undervaluation against the dollar set to correct in a weaker USD environment.
In Turkey, analysts are bullish on the lira, citing tight monetary policy that supports current account adjustments, which should favor the currency. Their forecast for TRY is significantly more favorable than current forward rates.
Israel’s ( ILS ) has a neutral outlook from BofA, with forecasts aligned with forward rates for the second quarter of 2025. However, they acknowledged potential upside risks to the shekel if ceasefire agreements in the region are fully implemented.
For the Czech koruna (CZK), the report suggests that the currency is likely to perform better than futures indicate, as the Czech National Bank (CNB) is expected to be cautious with its easing cycle in the short term and a weaker dollar should provide additional support.
Finally, the Hungarian forint (HUF) is expected to strengthen from the second quarter onwards, supported by credible new central bank leadership and fiscal policy, with the impact of a weaker USD.
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