While the Czech koruna had been little change following the CNB and ECB meeting, Czech rates and yields fell sharply. For instance, the 10Y swap rate has dropped by around 15 bps since last Wednesday. Currently, we think that there is not much room for cutting market’s bets on interest rate hikes – especially as figures form the labor market have showed a solid improvement this morning. The unemployment rate dropped from 9.2% in March (or in April 2010) to 8.6% in April. The situation on the labor market has been improving thanks to strong performance of the Czech exportoriented industry, which recorded still strong readings in March (it grew 9.5% y/y).
The Hungarian forint strengthened sharply on Friday, falling back below the EUR/HUF 265 level. Also this morning, sentiment regarding CE currencies remains positive, with the Hungarian forint extending gains.
On Friday, Hungary’s top court annulled for the second time a 98% tax imposed retroactively by the government on public sector severance pay. The Constitutional Court said the centre-right Fidesz government’s move to impose a tax on such incomes earned in 2005-2009 hurt the human dignity and ruled that the tax authority must refund the tax to those who had paid it. For this year however, the tax remains in effect.
Hungarian Prime Minister Orban said on Friday that the country will be in a position to join the euro area around 2020. While euro adoption could happen a year or two earlier than 2020, it is a realistic expectation, Orban said at a conference in Frankfurt.
Apart from the unexpectedly mild comments of the ECB’s president Trichet on Thursday, a further round of (previously announced) interventions through the state-owne BGK bank bolstered the Polish zloty on Friday. Hence, the EUR/PLN currency pair was after a short break trading again below the 3.94 EUR/PLN level.
Regarding this week’s calendar, there are at least two interesting events: the Monetary Policy Council meeting (Wednesday) and the release of April’s inflation (Friday).
Although we estimate that inflation rose further (it might even reached 4.5% y/y), we don’t think that the NBP will increase interest rates this time. All in all, from the perspective of the zloty, we expect that the EUR/PLN currency pair could stay close to current levels following sessions.