On Wednesday, Central European currencies gained support of the weakening US dollar and posted small gains. Trading activity in past few weeks has been all about the situation in the euro zone and domestic events have only had a negligible impact on markets. In this respect, yesterday’s session was no exception as the reaction to slightly better than expected figure on Poland’s industrial output for September was negligible as well as on relatively successful auctions of Polish and Czech bonds. In the Polish case, the demand for the bonds was even almost three times higher than the amount eventually sold.
Interestingly, A Hungarian poll showed that 15% of borrowers may opt for early repayment, which is tad below the central bank’s 20% assumption. Recall, the government assistance program allows borrowers to repay their forex mortgages at a fixed exchange rate, deeply under the spot market rate.
Regarding the rest of the week, we expect a volatile trading given the uncertainty related to the outcome of the EU summit. This uncertainty became also visible overnight as French president Sarkozy failed to give any comments after a meeting with German Chancellor Merkel. This suggests that there is still a dispute on how to increase the firepower of the EFSF. Despite the fact that US eco data (namely, Philly Fed survey) will be released today, we don’t expect they will have enough power to change global sentiment in a sustained way (although a positive trend of better than expected US eco data might continue today). A clear rebound of the US dollar in Asia suggests that the regional currencies should remain under pressure.