Lower inflation weighed on the koruna, strong demand for Czech six year bonds

The Czech koruna was hovering around EUR/CZK 25.60 for most of yesterday´s session after it had weakened in the early phase on lower than expected September inflation figures. High volume of trades oscillating within a narrow range after the data release suggests that only minority of market players reconsidered their stance towards possible interventions of the Czech National Bank. The bank’s comment on inflation together with a falling outlook for administered prices next year – point to increasing downside risks to the CNB’s current inflation forecast”. Let us recall that before the release, lower than expected inflation has been considered a major antiinflationary risk of the current CNB forecast. Clearly, yesterday’s figures further heightened those risks.

Yesterday’s government bond auction unveiled strong appetite for Czech six year obligations. In comparison with the previous auction, the bid-to-cover ratio rose from 1.6 to 2.3 and the finance ministry easily sold bonds in the maximum planned volume of CZK 5bn.

Later today, markets will focus on the US initial claims report. Another eyecatcher will likely be the protracting deficit/debt debate in the US that has however had insignificant impact on regional currencies so far.