Along with our expectations, EU bailout package for Cyprus worsen the risk sentiment in the Central Europe. Yesterday stocks fall across the whole region, neither the currencies performed well. The worst performing currency in the region was again the Hungarian forint, which hit its 14-month low at 308.5.
Nevertheless it is necessary to say that weakness of the forint was not caused only by the Cyprus crisis, but also by domestic political situation. Markets are worried about recent change in NBH’s leadership, new constitution as well as common plans of government and the central bank for reduction of private FX debt, which could create space for more FX depreciation. Despite verbal interventions the forint remained weak. Several government officials have tried to dissuade concerns that the government wants to use weak currency to stimulate economy and denoted current levels of the forint as too week and not in the country’s interest.
Today, the Polish industrial output should be in line with the market consensus and confirm bottoming out process. After January’s surprising increase, market expects fall in February around 1.6%.
Nevertheless we believe that these data will have limited impact and the situation in Cyprus will be in focus. Due to the fact that Cyprian banks are to be closed until Thursday, the nervousness is likely to persist and thus the regional currencies will hardly recover.