The koruna has weakened in the second half of the week as the region came under pressure, tracking the decreasing equities. Some CNB bankers´ comments came in but had no impact on the koruna. However, there were rumors about some dividend conversions, weighing on the Czech currency.
CNB Vice governor Mojmír Hampl said that he still preferred loose monetary policy. Governor Miroslav Singer then added that the interest rates would rather stay stable this year, unless big surprises come in. The comments are in line with our expectation that the interest rates will remain unchanged until the 2Q 2013. The CNB is unlikely to change the rates at its upcoming meeting at the end of March. Although the inflation is currently elevated, mostly non-core and tax factors are behind. The domestic demand is still weak, implying that the risk of a rise in inflationary expectations is low. We consider the CNB meeting to be little important for the koruna. No other Czech events are scheduled for next week.
The last data from the Eurozone tempered hopes on a faster economic recovery. The PMIs fell below 50 in Germany and France, which pushed the Eurozone index lower, too. Moreover, Fed Chairman Bernanke said that situation in Europe remained difficult and the banking sector would require further strengthening although strains had eased. Especially the worse figures weighed on the euro and the riskier assets, overall. Similarly, the data reduces the chance that projections for the CE economies will improve. Therefore, it is negative for the koruna and its peers.
On the other hand, the ECB has suspended its interventions in bond markets, which indicates that they are stabilizing further after the central bank´s second liquidity injection. The European Commission recommended raising the rescue funds to 940bn from 500bn euro. The news had positive influence on the euro-dollar; the pair showed swings on both sides during the week.
Similar to the Eurozone, also China has posted a worse-than-expected PMI this week, which is another indication that the economy continues to slow down. Moreover, warning has also come from corporate sector: Chinese association of carmakers forecast that sales will likely fail to reach the projected growth and also some big mining companies warned that the Chinese demand is slowing.
This week, there were some disorderly moves on the euro-dollar, bonds and equities, probably caused by rather low activity on the markets and the fact that only few important macro figures were released. week, somewhat more releases are on the agenda, like the German Ifo index and the Chicago PMI; they may help to restore the relations between the asset classes. Moreover, the data will contribute to discussion on whether the financial markets and the economic outlook are in line.
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