Since yesterday’s general strike proved to be rather symbolic as it brought only temporary disruption in services of public transport, the koruna was able to recover Wednesday’s losses. The impact of the general strike was overshadowed by global events. In this respect, the koruna especially benefited from a weaker US dollar yesterday. We believe that the EUR/USD development will remain the key driver of the Czech currency in the rest of the week too.
Interestingly, despite further widening of credit spread in the EMU periphery the credit risk on the Czech bond market was only little changed – actually, if we check the ASW spread it declined a bit.
Hungary - forint weakens on risk aversion
The Hungarian forint continued weakening on Thursday on the back of Greek woes. The pair hit the 269.80 level before it settled down at 269.00. The weakening trend has been helped by the weakening demand of the bond auction, which saw less demand for papers. Bid-to-cover ratios was still above two for 3-, 5- and 10-year papers, but it was not as high as we have seen in the last couple of months. This could mean an end to the bull run on the bond market, which saw inflow of more than Ft1,000bn from foreign investors since the beginning of the year. If so, markets could continue to search for a new equilibrium.
The Polish zloty suffered yesterday. The positive effect of higher inflation was mitigated by weaker labor market data. The wages decelerated to 4.1% y/y from 5.9% y/y and employment growth slowed for the third month in a row to 3.6% y/y. That is why the polish zloty shrugged off the otherwise positive effect of stabilization on EUR/USD and came under renewed pressure. If the global sentiment remains rather negative, the pair may test 4.00 EUR/PLN.
For now we hold on to the view that the Polish central bank is going to take a summer break in the rate hiking cycle before a final move in the autumn. There is a risk of spillovers from the current high inflation to inflation expectations, but meanwhile the labor market is rather weak and foreign demand seems to be uncertain in the light of ongoing crisis in euro zone peripheries.