Regional currencies extended previous losses on Wednesday. In intraday trading, The Czech koruna even touched the EUR/CZK 25.0 level for the first time since early January. Both the zloty and the forint depreciated by more than 1% and reached levels last seen in June 2009 and April 2009 respectively. Poland’s FinMin Jacek Rostowski said yesterday that the weaker zloty deteriorates the outlook for debt-to-GDP ratio for the next year. Let us remind that the zloty already depreciated by about 12% on a year-to-date basis.
Regarding today’s calendar, the regional eye-catcher is the Czech National Bank’s meeting. Base interest rate has remained unchanged at an all-time low for 16 months, and money market rates are also close to their lows. While the central bank forecast indicates that the Czech Republic’s interest rates should go up at the turn of the year, the worsened outlook for the European economy will curb rate hikes in the Czech Republic. Hence we will see a prolonged period of central bank interest rate stability, albeit this does not mean that long-term interest rates will not continue to break away from their recent lows in the months to come.
More dovish stance of the CNB along with continuing Euro zone problems and strengthening US dollar could push the EUR/CZK cross rate back to EUR/CZK 25.00. Technically speaking, if the resistance is breached, the koruna would open a room for further depreciation to EUR/CZK 25.40.