On Monday, turnabout in global sentiment weighed on regional currencies. During the morning session, several German policymakers, including Finance Minister Schaeuble, warned on unrealistic expectations that there would come a definitive solution to address the EMU debt crisis at next weekend’s EU summit. Hence, the zloty erased the most of its post-elections gains and settled above 4.35 EUR/PLN. The koruna once again proved to be the most resilient and closed at 24.80 EUR/CZK level. Regarding the forint, it extends yesterdays losses and the EUR/HUF cross rate is heading to 300 EUR/HUF despite the fact that gross wages growth surprised to the upside in August.
Yesterday, the Czech National Bank governor Miroslav Singer said at the conference about EU debt crisis that the Czech Republic should postpone thoughts about adopting the euro until EMU institutional rules are clarified. Apart from that, Singer reiterated that he could imagine interest rates move in either direction. Recall that we believe the CNB repo rate will remain unchanged for another 9 months.
As far as the outlook for the rest of this week is concerned, we don’t see why markets should turn again extremely positive ahead of the EU Summit. It looks reasonable to remain cautious until the details of a plan are available. Therefore, we expect regional currencies to remain under pressure in sessions ahead.