CEE FX: Softer geopolitics aids high beta – ING

ING’s Frantisek Taborsky expects upcoming Czech and Hungarian Gross Domestic Product (GDP) data to confirm improving growth momentum, while Polish inflation should re-accelerate on higher fuel prices. Taborsky argues that reduced US–Iran tensions and signs of peace talks could support a recovery in Central and Eastern European (CEE) rates and benefit high-beta currencies like the Hungarian Forint (HUF) and Polish Zloty (PLN), while the Czech Koruna (CZK) may weaken above 24.200 EUR/CZK.

Improving data and calmer geopolitics in CEE

"The lack of further escalation in the US-Iran conflict over the weekend, together with signs of peace talks, should support some recovery in CEE rates after aggressive rate hike pricing returned on Thursday."

"The end of the month is typically quieter in the CEE region. This week, Thursday brings key growth releases. We expect Czech 2Q GDP at 0.5% QoQ and 2.1% year-on-year, compared with 0.2% QoQ and 2.2% YoY previously, pointing to stronger sequential growth momentum despite slightly softer annual growth. "

"The same day, we expect Hungary's 2Q GDP to accelerate to 1.2% QoQ and 2.4% YoY from 0.8% QoQ and 1.7% YoY, consistent with stronger activity than indicated by earlier estimates and supporting a more constructive growth outlook."

"On Friday, we expect Poland's July inflation at 0.9% MoM and 3.1% YoY, up from -0.5% MoM and 2.5% YoY, marking a notable acceleration in headline inflation, largely reflecting higher fuel prices following the expiry of retail fuel support measures."

"The Czech National Bank's blackout period ahead of the August meeting starts on Thursday, so board members may provide further signals in the coming days. Last week, Jan Kubicek said another rate hike remains under consideration, but there is no urgency for now. That points to no change in August, in line with our forecast."

"High-beta currencies such as the forint and zloty should benefit from this backdrop. By contrast, the koruna could come under pressure and move back above 24.200 EUR/CZK, given its strong link to rate differentials and the extent of recent rate hike pricing."

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