The Czech koruna jumped to new 2-year high yesterday

The rise of the koruna was not wise speculation, because the transaction was likely done. Exchange of 529 m dollars may explain the strengthening of the koruna in recent days. Moreover, we could not be sure that they exchanged dollars at all, because PPF is present at other markets (Russia, China…) too. However, that’s obvious that they had exchanged dollars ahead of announcement of transaction or they do not intend it at all.

The market ignored October’s current account which posted a deficit of CZK 12.9 bn, i.e. in accordance with forecasts. The rise in the deficit compared to September is based on the formerly published seasonal reversal of the trade balance, which turned from September’s surplus into a moderate deficit of CZK 4.1 bn in October. Hence October’s data included no new information on the current account trends. The financial account brought two major pieces of information. Above all, it bore out the formerly noticed high demand of foreign investors for Czech bonds. This demand is related to the fast rise in bond prices over the last three months. On the other hand, October was not one of the months that saw large inflows of foreign direct investments.

Today the market may digest yesterday development. Stagnation of PPI in November may not change thinking of the market. It support a scenario of stable interest rates for 6 months at lest. Thus the koruna may hover around EUR/CZK 30.70 level.