According to BNY's Bob Savage, most Middle East and North Africa (MENA) currencies experienced net selling in May, reversing the brief period of relief seen in April. Fixed income assets in the region also continued to underperform during this period [1]. The report highlights that rising global inflation expectations, driven by ongoing conflict, and higher United States (US) rate expectations have exerted downward pressure on frontier market foreign exchange (FX), including MENA currencies [1].
Capital inflows into Gulf economies and Egypt are at risk of slowing further if US Dollar cash yields continue to rise, compounding the challenges faced by regional currencies [1]. Notably, only the Jordanian Dinar (JOD) ended May with modest net buying, though the levels were described as 'mediocre at best' [1].
The narrative of the Omani Rial (OMR) as a new 'regional safe haven' was also undermined in May, as geopolitical developments began to influence flow interest, diminishing the currency's perceived advantages [1]. Energy prices, which might have served as a buffer, were not sufficient to offset the sustained carry unwinding affecting the region's currencies [1].
Overall, May was characterized as a difficult month for frontier markets in the MENA region, with both FX and fixed income assets under pressure due to external macroeconomic factors and shifting investor sentiment [1].
CONCLUSION
MENA currencies and fixed income assets faced significant headwinds in May, driven by rising global inflation expectations and higher US rate forecasts. Only the Jordanian Dinar saw modest net buying, while the safe haven narrative for the Omani Rial weakened. The outlook remains cautious as capital inflows risk slowing further if US Dollar yields continue to rise.