Highlight: Czech koruna tracks Zloty’s gains and it’s heading towards EUR/CZK 24.0
The Czech koruna gained further, surprisingly tracking the post-inflation rally on the Polish market. Although Czech inflation is much lower and the majority of CNB board dovish, the foreign players seem not to distinguish them for now. Hence the pair broke through an important 55-day moving average (24.347 EUR/CZK) and is set to retest psychological barriers around 24.00. It seems obvious that the currency so far ignores the domestic political turmoil. Currently the hottest issue is the fight for interior ministry as two bigger collation parties (ODS, TOP 09) want the smallest one (VV) to quit the position.
The Hungarian forint felt the impact of a stronger dollar and the currency weakened temporarily to the 268.00 level before it settled down at 267.25. Jitters about higher Chinese inflation and peripheral bond markets of the euro zone kept carry-trades on the downside and hence it will be interesting whether this is just a short-term correction or the beginning of a global weakening trend.
Despite higher inflation, the Polish governor sends a dovish message
The Polish zloty experienced another successful session on Thursday. The EUR/PLN currency pair dipped even below 3.95 EUR/PLN, i.e. the strongest level since mid February 2011.
President of the National Bank of Poland, Marek Belka, cooled down markets which started betting on a rate hike in May right after the announcement of March’s inflation. Belka told CNBC yesterday that decisions of the Monetary Policy Council (MPC) were not based only on monthly data and that the current monetary policy had a certain direction which will be maintained. Nevertheless, he also said that the monetary policy tightening cycle has not ended yet. Regarding the inflation figure, Belka said the latest inflation reading was certainly not good but added that every cost-push shock has a short-term character.
The results of the March monetary policy meeting were released on Thursday. Interestingly, the report unveiled that Anna Zielinska-Glebocka (who is known for her strictly hawkish comments) did not vote for a rate hike.
Regarding trading, the above mentioned comments made by Marek Belka clearly disappointed a part of the market. Spread between FRA 1x4 and three month WIBOR dropped from 35 bps (Wednesday) to 26 bps. This could cap prospective gains of the zloty.