The Czech koruna closed little changed on Tuesday, despite strong gains seen on the neighboring Slovak FX market. Following a 50 bps rate in Slovakia the EUR/CZK pair dipped to the 28.32 level but it was unable to move further south. Hence like on Monday, the koruna was unable to copy gains of the leading currency in the region (it was the forint on Monday. market awaits now an outcome of the CNB Bank Board’s meeting scheduled for Thursday.
A 25 bps rate hike is now expected by the markets, hence an eventual ‘on hold’ decision could be decision could be a disappointment. We, however do not rule out a scenario of keeping official rates unchanged. In such a case, depreciation of the koruna looks quite likely. Especially if we take into account that ECB is going to hike its official rate by 25 bps next week. This would eventually shift the interest rate differential to 100 bps. Thus, the koruna will probably stay in wait-and-see expecting Thursday’s CNB meeting.
(CSOB - Investment research)