CEE FX: Rating downgrade adds to regional FX pressure – ING

ING strategist Frantisek Taborsky says Moody’s downgrade of Poland to A3 adds to pressure on CEE assets at the start of a relatively quiet second half of the month. With high energy prices, a stronger US Dollar and limited progress in the US-Iran conflict weighing on the region, ING maintains a bearish view on CEE currencies. ING sees 24.300–24.350 as fair value for EUR/CZK and further upside risk in EUR/PLN, while EUR/HUF could rise near term before potential support for the forint around the NBH meeting pulls the pair back towards 362.

Downgrade reinforces weak CEE FX

"The second half of the month is typically quieter in CEE, with little beyond tomorrow's National Bank of Hungary's meeting likely to attract market attention. Headlines from the Middle East and US over the weekend suggest a slightly positive open for markets today. On Friday, Moody’s downgraded Poland to A3, bringing its rating in line with S&P and Fitch. Although bond markets may have partly priced this in, some aversion to Polish bonds is likely this morning."

"Today’s calendar includes Poland’s August wage data, a key indicator for the central bank. Polish retail sales follow tomorrow, alongside the National Bank of Hungary meeting. The NBH is expected to pause its current “mini” easing cycle, leaving the policy rate at 5.50%. It will also publish a new forecast and may review its inflation target, potentially outlining a two-step reduction from 3.0% to 2.0%."

"In the Czech Republic, consumer demand data is due on Thursday, followed by Friday’s Czech National Bank minutes, which should provide more detail on last week’s board discussion."

"CEE currencies remain weak, and we retain a bearish outlook for the week ahead. Limited progress in the US-Iran conflict, high energy prices and a stronger US dollar should continue to hinder any recovery. After last week’s CNB meeting, we still see 24.300–24.350 as fair value for EUR/CZK."

"By contrast, EUR/PLN has further upside potential, with today offering an early test after the rating downgrade. EUR/HUF may rise today, but tomorrow’s NBH meeting should provide temporary support to the forint, potentially allowing EUR/HUF to test 362."

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