CEE FX: Dovish stance and energy shock pressure currencies – ING

ING strategist Frantisek Taborsky outlines a busy week for Central and Eastern European (CEE) markets, with PMI, inflation and industrial data across Turkey, Hungary and the Czech Republic, plus policy decisions from Poland and the Czech National Bank. He expects NBP to keep rates at 3.75% and delay hikes until 2027, sees CNB likely hiking 25bp, and maintains a dovish bias as rising energy prices and a stronger Dollar weigh on regional FX.

Dovish CEE central banks versus stronger Dollar

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"Trading on Friday saw a return of risk-off sentiment, following a brief period of relief after the Fed and European Central Bank meetings. The combination of rising energy prices and a stronger dollar globally, alongside generally dovish central banks within the CEE region, will continue to exert pressure on local currencies."

"Tomorrow, we will see Turkey’s inflation figures for October. Our estimates suggest a monthly acceleration from 1.8% to 2.4%, while the year-on-year figure is expected to tick lower to 29.6%."

"On Wednesday, Hungary’s industrial production data and the Czech Republic’s October inflation figures will be published. We anticipate an acceleration in headline inflation from 2.5% to 2.6%, and a further rise in core inflation from 3.1% to 3.3%. The National Bank of Poland is also expected to keep rates unchanged at 3.75% and present a new forecast. We do not anticipate the first rate hike until the first quarter of 2027."

"On Thursday, the Czech National Bank will follow, likely raising rates by another 25bp to 4.00% while also presenting a new forecast."

"In line with our expectations, EUR/CZK has returned to the 24.300–350 range, which we consider fair for the time being. Although we anticipate a hawkish stance from the CNB, the bar is high given that 100bp of tightening is already priced in and the koruna has a tendency to weaken slightly following CNB meetings. We could see the pair move slightly above 24.350 again."

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