The Czech koruna remains in a defensive mode as the negative interest rate differential continues to weigh on the Czech currency. Also the spike in risk aversion on euro zone peripheries in light of Spanish regional elections could have weighed on the regional currencies by the end of the week. Nevertheless this is more problematic issues for neighboring higher-yielding currencies such as forint or zloty.
The week ahead is empty and we continue to see high chances of the koruna testing 200-day moving average, currently at 24.55 EUR/CZK.
The Hungarian forint was hurt by renewed fears from a global slowdown and the pair rose to 269.50 on Monday morning, up from 266.50 on Friday. News about the agreement between banks and the government to fix CHF/HUF rate on FXmortgages could also have played a role as it will add risks to the banking system.
A business sentiment poll showed deterioration of expectations in May, which could raise concerns about the sustainability of the economy’s revival.
The Polish zloty posted modest losses on Friday. Figures on industrial production and core CPI were more or less in line with market expectations; PPI surprised slightly on the upside and hence confirmed a cost-push character of the current inflation shock.
A member of the Monetary Policy Council Andrzej Kazmierczak reiterated views of several MPC members on Friday as he said that the NBP remained in a monetary tightening cycle. In his opinion, the main argument for a further increase in interest rates remains the negative real interest rate. Interestingly, Kazmierczak said he considered the current zloty’s exchange rate had been around its fair value. The NBP president Marek Belka said on Saturday that market expectations for two more 25bps hikes were very reasonable. Belka also said that inflation was approaching its peak and should gradually decline and that the interventions of FinMin in the forex market stabilized the zloty.
Clearly, the situation in the MPC changed considerably. Several MPC members who previously opposed rate hikes now clearly joined the hawkish camp. It seems like the most of the MPC had supported recent rate moves. Moreover, they probably agree with further monetary tightening. On the other hand, the timing of further moves remains highly uncertain.
As far as the zloty’s trading is concerned, we expect that a new wave of concerns related to Euro zone sovereign debt should weigh on risky assets and hence play against the zloty. Nevertheless, the 200 days moving average (3.955 EUR/PLN) could work as a relatively strong resistance.
EUR/PLN: zloty under pressure in line with other CEE currencies
