The Czech koruna ignored the confidence vote and strengthened further to two and half month’s highs at 24.05 EUR/CZK.
The technical picture continues to look favorable after a break through the 55-day moving average and a next stop is currently at 24.92 EUR/CZK. Although from a fundamental point of view the Czech koruna seems to be overvalued (slower real convergence, lower interest rate outlook), the investors may appreciate the gradually declining risk premium on Czech assets. Czech CDSs were more or less stable in recent weeks, while increasing all around the euro zone, including Germany. Nevertheless we consider that factor to play only a temporary role and should be offset by the negative effect of the interest rate differential.
Today, the newly elected central bank governor Lubomir Lizal confirmed that he supports the current majority of the doves on the board, which will be a plus for Czech bonds – especially ahead of the upcoming auction. Recall that the Czech MinFin wants to sell CZK 8bn of a 3Y government bond benchmark. We believe that demand will again be very strong as it has been at recent auctions.
Forint stable ahead of Fed meeting
The Hungarian forint remained stable on Tuesday within the 264-265/€ range. High-yielders are well supported in general and better sentiment on equity markets helped their appreciation. Today’s Fed meeting could be important for the future as news about the end of QE2 could drive markets in the coming days.
Poland
The Polish zloty traded without any clear driver on Tuesday and oscillated around the
3.94 EUR/PLN level.
A member of the hawkish camp in the Monetary Policy Council, Adam Glapinski, told Reuters on Tuesday that the plan to convert a part of money from EU funds into zlotys might “gently and sustainably” strengthen the zloty. Glapinski added that the prospective zloty appreciation would prevent the central bank from raising interest rates and that the stronger zloty was the best tool to fight high (commodity driven) inflation. Today, retail sales and unemployment readings will be released. We expect that the figures might confirm that demand pressures remain muted. Hence, we think that the zloty could stay close to current levels in the sessions ahead.