Czech fixed-income market eyes tomorrow’s CNB meeting
The Czech koruna once again stayed in very tight range around 24.00 EUR/CZK. The domestic scene is pretty uneventful till Thursday when the CNB meeting is scheduled.
As we have already communicated, we expect the central bank to remain in a rather dovish mode, which may have a negative impact on the koruna. We are currently focused on whether the negative reaction is strong enough to send the pair back above the 55-day moving average (24.34 EUR/CZK).
The Czech fixed income market clearly eyes tomorrow’s central banks meeting. In this respect, the CNB meeting might be interesting, because the Bank Board will reveal a new inflation projection. Recall that the inflation outlook might be negatively influenced by a recently announced hike in gas price. Starting from the third quarter the (natural) gas price should be increased by 9.5 %. This would add to 0.2 percentage points to the headline inflation.
The Forint depreciated against the euro yesterday ahead of today’s minutes, which are expected to be dovish, and EUR/HUF trades back above the 265-mark.
This morning, Hungary posted a trade surplus of €0.831B in February. The data showed that exports rose by 27.2% YoY in euro terms, while imports were up by 20.4% in February.
The Polish zloty posted modest losses in a lower-volume session on Tuesday. The EUR/PLN currency pair drifted higher and after six sessions even dipped above 3.95 EUR/PLN.
We think that the ECB monetary policy meeting is the first event on a schedule that might have an impact (rather negative) on the zloty’s trading. Recent inflation and economic developments are likely to convince the ECB that it has to tighten monetary policy again in the near term, confirming our expectation that they may act by June. To keep this prospect intact, Mr. Trichet will likely drop the expression that the ECB will monitor developments very closely and use instead the expression “strong vigilance”. At the same time, we do not expect that the NBP will move rates at its May meeting, even though the inflation for March surprised significantly on the upside and it may have risen further in April. Hence, we think that modest zloty’s losses are likely. Nevertheless, the room for prospective depreciation of the zloty is in our view limited since we bet on a rate hike in Poland as early as at the following meeting in June.