Czech Koruna: Is range-bound trading against the Euro set to continue? – ING

EUR/CZK remains within a relatively narrow range in ING’s outlook, with only a slight revision to pre-meeting levels as seasonal support and an expected correction in rates help underpin the koruna. Assessing the Czech National Bank’s dovish-leaning 4–3 split decision, ING strategist Frantisek Taborsky argues that the recent rally in CZK rates has gone too far, even though rate differentials suggest a weaker koruna.

Can seasonal support offset rate differential pressure on the koruna?

"The main takeaway from the CNB meeting is the 4–3 split within the board, following a long period of strong majorities. 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 the first quarter of 2027, bringing the new CNB outlook closer to our own forecast. We do not believe the current shift in energy prices justifies such a rally in CZK rates. The move appears excessive at this juncture."

"Consequently, we view two additional rate hikes as the minimum the market will tolerate, and, given today’s rebound, 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. However, as previously noted, rates are likely to correct, as the current rate differential is too tight."

"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."

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