Czech Koruna: CZK faces downside risks against Euro into CNB – ING

ING analysts David Havrlant and Frantisek Taborsky say the Czech market is being driven mainly by global factors and high energy prices, but EUR/CZK still reacts to Czech National Bank (CNB) meetings and guidance. They note that a narrowed interest-rate differential remains the best guide for EUR/CZK and see scope for further koruna losses if rate-hike expectations are pared back.

Koruna pressured by rates and energy

"Despite the rise in CZK rates, the interest-rate differential has narrowed and remains the best guide to EUR/CZK. Dovish signals from policymakers, alongside market pricing of roughly 100bp of tightening, have weakened the koruna in September, with scope for further losses."

"We expect EUR/CZK to enter next week’s meeting near 24.30. If the press conference confirms our view that a rate hike is not currently under consideration, the pair could move higher as hike expectations are pared back and oil and gas prices continue to rise."

"Rates remain the key focus, but energy prices are still the main driver, while the CNB’s impact is likely to be temporary. After some easing in market pricing over the summer, recent sessions have brought renewed selling, in line with moves in core markets."

"With the CNB having already raised rates in June and the board signalling no urgency to tighten again, we expect some reduction in hike expectations at the front end. However, in the current environment, pricing is unlikely to fall below three hikes."

"The long end should remain under pressure from higher core yields and a larger-than-expected fiscal deficit planned for next year. Overall, we expect the curve, currently among the flattest globally, to steepen."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)