CZK: CNB paints a hawkish picture, but the economy shows otherwise – ING

On Friday the calendar is empty in the region except for the Czech National Bank minutes. Last week, the central bank slowed the pace of cutting from 50bp to 25bp for the first time, ING’s FX strategist Frantisek Taborsky notes.

Economic data continues to surprise to the downside

“The forecast showed only limited scope for rate cuts, well above current market pricing, and the governor would not give any forward guidance on what to expect next. So, the minutes could provide some indication of where the discussion is within the board. However, we can expect the minutes to be more on the hawkish side versus current pricing with 3.60% at the end of this year, implying 90bp of rate cuts.”

“The CZK has been the only currency strengthening over the last week and we still see potential for a continued rally here, especially if the market reprices current dovish expectations. On the other hand, economic data continues to surprise to the downside, which will make the case that the central bank is behind the curve and the market will have reasons to keep some rate cuts priced in, limiting the CZK.”