The EUR/CZK rate was traded in a tight range close to the 28.40 level on Friday as it lacked stronger stimuli to move any direction. Either regional FX markets or domestic economic/political scene did not provide sufficient trading impulse.
Regarding a political development: Czech President Klaus recently said that he did not want to let to last political negotiations forever. In its interview he also mentioned a possibility of early elections. On the other hand he still did not want to be involved in inter-party negotiations. In our view early elections are still a real option, but the time is running out for such scenario, if they should be scheduled at the same time as the upcoming local elections (October 20th). Should the early elections be hold at this term, Parliament would have to be resolved till August 20th and this scenario looks less likely now. Central banks in the region and their hikes will be in focus today and the whole week.
Today, the NBH should start with 25 bps, NBS should follow with a 50 bps rate hike tomorrow and importantly Thursday should bring an action from the Czech National Bank. Hence the koruna should watch the forint today, the SKK tomorrow and then it should await CNB’s Board meeting. Though a 25 bps rate hike is fully discounted, in our view it is still not a done thing.
(CSOB - Investment research)