While the Czech koruna edged a little lower, both the forint and the zloty weakened on Friday. Later in the afternoon, the koruna slid below a support at EUR/CZK 25.76 to trade at the six week high of EUR/CZK 25.66 (55-days moving average) this morning. Contrary to the koruna, the Hungarian forint was under modest pressure at the end of the last week. The weakening was probably caused by an outflow of funds from Hungarian HUF denominated government bonds – their ten year yield has risen by nearly 20 basis points over the past two days. The yield of EUR denominated bonds were, however, falling simultaneously as some investors have probably switched over to them.
Regarding the week ahead, a meeting of the Czech National Bank next Thursday should be the main regional event. Although we think that a modest downward revision of economic growth forecast is likely, the change should not be severe enough to persuade Czech central bankers to intervene against the local currency.
In fact, market positioning ahead of the monetary policy meeting might have played a role in the koruna’s strengthening last Friday.