On Monday, the Central European currencies gained support from the better mood and posted solid gains. The forint led gains and after more than a month even dipped below EUR/HUF 300 level. The zloty, which has been underperforming its peers so far this year, also posted solid gains and the koruna was in the late afternoon trading in sight of 25.20 EUR/CZK.
Interestingly, it seems that Czech central bankers have finally noticed that the koruna had been significantly weaker that the CNB assumed in its latest Inflation Projection. Recall that CNB Board member Lubomír Lízal said yesterday that at the time being, the weakening koruna poses the only inflationary risk and if it further depreciates the central bank should probably respond to that. Moreover, a similar comment was made by the central bank’s governor Miroslav Singer. Let us remind that according the CNB Inflation Projection the koruna should trade at the EUR/CZK 24.80 level in Q4/2011 and at the EUR/CZK 23.70 level in Q1/2012.
However, in recent days, the Czech koruna has been strengthening at a faster than usual pace. Since the Czech market just reflects global sentiment, we don’t expect a big market repositioning ahead of Thursday’s ECB meeting and the EU summit. Technically speaking, 25.0 EUR/CZK level is seen as the strong support which should cap prospective gains of the Czech currency.