Czech PPI up on oil and food
The Czech koruna remained under pressure on Friday and touched 24.40 EUR/CZK. The Czech currency clearly feels uncomfortable under strengthening US dollar circumstances. Beside that, also the ongoing dovish stance of the CNB and released dovish inflation forecasts continue to drive the money market rates lower, which can weigh on the koruna as well.
The upcoming week is without significant domestic events, while a permanent government crisis is clearly not a big issue for the markets as well. Hence we believe the Czech currency could keep its negative territory for a while and stay in a range between 55-day (24.32 EUR/CZK) and 200 day (24.56 EUR/CZK) moving averages.
Concerning the Czech yield curve, it should be rather stable too as the market has already digested the last CNB meeting and the related (mostly dovish) inflation projection. Today’s, release of the high PPI figures in April will not bring much volatility too.
The Hungarian forint weakened to a 2-month low of 269.00 on Monday morning as high-yielding currencies were struggling amid renewed dollar strength and negative equity market sentiment.
The currency’s weakening is paired with widening spread at long-end forwards. The 5y5y forward swap spread has increased to 293bps suggesting that the market has some concerns about the implementation of the fiscal consolidation package.
The central bank will have its monthly meeting today and no move is expected as the inflation outlook is still favourable, while financial conditions are broadly stable. The accompanying statement could be interesting because the FRA curve is still pricing in a 50% probability for a 25bp hike. As long as the current uncertain conditions remain, a more cautious positioning on the Hungarian market could be considered.
The Polish zloty gave up the most of the gains it had posted during the week on Friday. The EUR/PLN currency pair was weakening in the afternoon and edged to 3.94 EUR/PLN. The figure on April’s inflation released on Friday was in line with our and market’s expectations (4.5 % y/y). Compared to the previous month, consumer prices accelerated by 0.2 percentage point on a y/y basis and the growth was driven mainly by higher commodity prices.
Regarding the zloty’s trading, we expect that the EUR/PLN currency pair could stay at current levels. The prospective increase in risk aversion and further gains of the US dollar might weigh on the zloty in the short term. On the other hand, interventions of the Ministry of Finance might overshadow deterioration of the global sentiment.