Czech Republic
The Czech koruna stays in the defensive after breaking through the 200-day moving average (24.54 EUR/CZK) and the March maximum (24.59 EUR/CZK). The recent move above 24.60 opens space for further losses with next potential target as high as 25.00 EUR/CZK. Nevertheless it is worth stressing that we bet only on short term losses of the Czech currency, driven by the interest rate differential. As the CNB counts with the koruna at 24.00 EUR/CZK for the third quarter in current inflation forecast, we may hear more hawkish talk form board members in reaction to the weaker koruna.
The key event for the Czech bond market was an auction of a 5Y government floater, which met solid demand (although it was a bit weaker compared to the previous auction). Nevertheless the bullish sentiment on the Czech bond market was confirmed by the Mininstry of Finance got better pricing – just 22.5 bps above six-month Pribor.
The Czech cabinet agreed yesterday to raise the lowered VAT rate next year to 14% and to unify the two rates at 17.5% in 2013, with no exceptions. The Czech Repblic will become only the second country in the EU to have a single VAT rate, after Denmark.
The cabinet expects to raise an extra CZK 21.3bn next year and then another CZK 22.5bn in 2013, to be used for pension reform.
Hungary
The Hungarian forint continued to trade in narrow range between the 269.00 and 271.00 level as there was no major news on the market. Politics heated up around the purchase of shares as one news portal said that the previous government could have bought it at a cheaper price, but at that time the opposition party Fidesz did not supported the idea.
Poland
The Polish zloty depreciated on Wednesday despite the fact that retail sales in April surprised on the upside and unemployment in the same month eased to 12.6%. The EUR/PLN currency pair breached 200 days moving average (3,955 EUR/PLN) already in the morning and during the most of session was trading above 3,96 EUR/PLN.
The zloty should remain under the pressure of lingering Euro zone woes on the one side and continuing monetary tightening on the other side. We think that the positive impetus form further hikes could prevail and the zloty could dip back below 200 days average in sessions ahead.