Czech government targets budget deficit at 3.5% of GDP
The EUR/CZK pair clearly felt uncomfortable above the 200-day moving average at the beginning of the week. Despite growing euro-concerns and higher Czech CDS, the koruna tried to regain ground.
Nevertheless any attempts to gain should only be short-lived as uncertainty ahead of EU Summit on Greece (scheduled for Thursday) should keep the koruna under pressure. If the pair remains above 200-day moving average, we may see it testing the 24.66 level soon.
Meanwhile, coalition talks on the 2011 budget continue. Finance Minister Miroslav Kalousek wants to prepare a draft budget with a deficit of CZK 105bn, or 3.5 % of GDP. Coalition parties now argue whether this ambitious budget should be attained through VAT hikes or through expenditure cuts. While the talks will continue during the summer, we do not think they will have a serious impact on the market (unless the targeted deficit changes).
Hungary
The Hungarian forint dropped to a new 4-month low of 273.50 EUR/HUF yesterday. The pair recovered late in the evening on a positive equity market performance and climbed back to 271.50. The bond market remained broadly unchanged as buyers turned up in the afternoon and foreign bond holdings showed record high level of Ft3678bn. It seems that appetite for Hungarian bonds has remained strong despite the euro zone crisis.
This morning the Statistics Office said that gross wages grew 6.7% Y/Y, slightly more than in previous months, while ex-bonus private sector wage growth remained modest at 4.4% Y/Y. Wage growth this year could be below the nominal growth of the economy, which may allow employment and productivity to rise.
Poland
The Polish zloty experienced an extraordinary calm session on Monday and the EUR/PLN cross rate was hovering around the 4,04 EUR/PLN level. Labour market statistics (employment, average gross wages) for June surprised slightly on the upside.
A far more interesting story currently takes place at the CHF/PLN currency pair. According to the most recent NBP’s financial stability report, Swiss franc denominated housing loans stood at nearly 60% in September 2010. Nevertheless, NBP’s deputy governor Witold Kozliski said yesterday that so far he did not see threats for the stability of financial system stemming from the sharp appreciation of the Swiss franc. Let us remind that the franc appreciated by about 10% against the zloty so far this year.