The koruna is marginally stronger after the week as it has given up most its gains from the first few days. The forint drew a similar pattern, while the zloty has weakened, underperforming the two currencies. The global markets offered the CE currencies a mixed inspiration. While the euro-dollar has risen, the major equity indices and risky sovereign bonds have lost.
As for local Czech factors, the focus is on the interest rates. Recently, two central bankers have been very dovish in their comment on monetary policy. The last one was Lubomír Lízal, who indicated voting for another cut and did not rule out zero rates. He also expects the CNB projection to be revised further down. We now see another rate cut as quite likely as it has good chance to get sufficient support at the next monetary meeting. The increasing probability of monetary easing was one of the factors that discouraged the koruna from further strengthening. However, it has still not brought any significant correction, which is, therefore, a risk for the near future.
The euro-dollar was boosted by the minutes from the last FOMC meeting. It showed that most of the committee members agree with further monetary stimulus. The Fed will likely take more action, unless the economic situation improves significantly. This is obviously negative for the dollar. On the other hand, equities, that are already high, only felt a short-lived boost.
Greeks want the Eurozone to ease the bailout conditions. During the week, several meetings on the issue took place. The Eurozone representatives do not want to compromise with the Greeks too early and they keep pressure on them. German Chancellor Merkel suggested that this week will not bring any decision and we will need to wait for the Troika report on Greece. As usual, the issue brings elevated uncertainty, but it has not so big impact on the markets as before, because the potential Greek exit is not considered the biggest problem for the Eurozone anymore.
Reportedly, Spain started to discuss conditions of bailout. If confirmed, it would be positive in the short term as it would open the door for the ECB interventions and mute pressure on the bond markets.
The ECB is the key player in the debt crisis and the markets are influenced by speculations on its future measures. One of them could be limits for bonds yields, either explicitly announced or implicitly set. The ECB has rejected such speculations and there is still the strong German opposition to interventions in bond markets. However, it seems that the market expects that at the end the bank will step in anyway.
The bets on central banks will likely remain the key support for the markets, while Greece and the worsening macro indicators may have negative effect. week, the German Ifo business climate will be the most important release in the Eurozone. The US calendar contains the 2Q GDP revision and Chicago PMI.