The euro-koruna rate ends flat at the 25.00 level despite some swings during the week. The koruna´s regional peers, the zloty and forint, show somewhat better performance. No Czech events influenced the trading; the PPI was neutral as it came out in line with estimates. The koruna was mostly driven by global markets, although on Wednesday, it weakened significantly with no obvious driver behind.
The Greek story starts another chapter. The second bailout package was approved by the Eurozone finance ministers and the risk of a disorderly bankruptcy in March has shrunk considerably. Greece endorsed a bond swap for private creditors, but the bill also enables non voluntary bond swaps, which may trigger CDS´s and, thus, raise uncertainty on markets. Moreover, the long-term problems remain: the debt restructuring is insufficient for the country to regain fiscal stability and the plan may be jeopardized by a worse economic performance. Market reaction on the Greek news was positive, but not very strong.
As for the European debt crisis, focus now turns to the ECB´s second LTRO scheduled on Tuesday, 28th February. Similar to the first one, it is expected to attract a huge demand for 3Y liquidity. The tender may further improve situation on bond markets and mute debt crisis concerns. The euro may have been supported this week by positive expectations of such a decrease in risk aversion. However, after the short-term positive impact wanes, the euro-dollar may come under pressure because of the higher euro supply on the market.
Positive news has come from China. The country has eased minimal reserve requirements for banks in order to boost economy. Then it also released a plan for loosening the strict capital controls, allowing foreign investor to play a bigger role on the Chinese financial markets.
The new macro data from the Eurozone was mixed; the PMI came out worse than expected, while the important German Ifo index beat estimates. Besides that, the European Commission has worsened its GDP projections for the member countries, which weighed on the euro temporarily. week, besides the LTRO another EU Summit is scheduled on Thursday, German Parliament will decide on aid for Greece and there are also some more bond auction on the agenda. However, they should not be a big risk given the ECB liquidity operation and the recent progress with Greece.
In the US, only minor macro releases were scheduled this week. It will change as next few days will bring a couple of important figures, such as the ISM index, the second GDP release and the consumer confidence index. Moreover, Fed´s Chairman Bernanke will deliver his semi-annual monetary policy report. China will publish its PMI on Thursday.
In the CE region, the zloty was supported by announcement of the government sale of a minor stake in . The European Commission proposed to suspend infrastructure-development subsidies to Hungary under its excessive-deficit procedure. The news had some short-lived negative impact on the forint, but regarding Hungary, negotiations about the IMF deal are more important issue for the currency. The koruna may be influenced by local PMI release and also by the regional issues.