CEE FX: What do the CNB’s dovish shift and NBP’s hawkish turn mean? – ING

Seasonal strength in the koruna should help EUR/CZK trade within 24.350–24.400 despite renewed upward pressure, according to ING’s Frantisek Taborsky. He notes that the Czech National Bank’s dovish signal runs counter to expectations of at least two further rate hikes and a hawkish repricing. While a more hawkish stance from the National Bank of Poland may lend support to the zloty, global risk aversion continues to be the main driver of CEE currencies.

What does CNB caution and a more hawkish NBP mean for currencies?

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

"The market interprets this as a dovish signal, suggesting the CNB is unwilling to hike rates further unless the inflation situation deteriorates significantly. For the first time since the onset of the US-Iran conflict, the CNB’s forecast aligns closely with market pricing, with the PRIBOR rate peaking at around 4.55%. However, inflation is expected to worsen over the remainder of the year, approaching 3% and nearing 4% in 27Q1."

"We do not believe the current shift in energy prices justifies such a rally in CZK rates. Consequently, we view two additional rate hikes as the minimum the market will tolerate, and we anticipate a hawkish repricing."

"EUR/CZK is facing renewed upward pressure. Indeed, if we take the shift in rate differentials at face value, the rates point toward 24.450."

"Furthermore, the koruna benefits from strong seasonal support in November and December, which should help temper the current weakening pressure following the dovish CNB meeting. We therefore anticipate a new range of 24.350-24.400, little changed from our pre-meeting expectations."

"For now, it is clear that the zloty may receive some support from the NBP’s shift toward a more hawkish stance. Nevertheless, global factors remain the primary driver; yesterday’s trading saw a rapid swing back to risk-off sentiment, renewing pressure on CEE currencies."

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