The Czech koruna showed only little weakness on repeated call for the prime minister Gross resignation on Monday. The unit eased to EUR/CZK 29.97 in the morning or some 0.3 % compare to the level where it traded on Friday afternoon. Nevertheless, the koruna erased more than half of the losses in the afternoon to close at EUR/CZK 29.90 zone. US President’s day helped to mitigate reaction on the political development, because many traders was on holiday.
As we wrote yesterday leader of junior coalition partner Christian Democrats Mr. Kalousek asked PM Gross to step down on Sunday again. Gross replied by calling for Christian democrats to leave ruling coalition. He prefers a minority government now. However, the situation moved further overnight. Both parties showed some readiness to compromise. Thus the break down of the government is less likely today.
Nevertheless, the situation changes quickly hence we should be careful in any assessment. All at all, we believe that current government will survive with only cosmetic redesign. Today American traders are back from holiday thus the activity should be higher than yesterday. The koruna may trade sideways because the market might wait for a political development and Thursday’s meeting of the central bank board. About half of the market expects another rate cut, but we guess the bank leave rates unchanged. The koruna may get some lift from overnight drop of the dollar, because CE currencies usually rise on dollar weakness.
ČSOB - Investment Research