The Czech currency tracked profit-taking yesterday

The Czech currency tracked profit-taking seen in the Hungarian Forex market ignoring the fact that an agreement between the main two political parties (conservative ODS and Social Democrats - CSSD) has been finally on the table.

The ODS has been assuring the public for three month that it would not to form a grand coalition with the CSSD. Now it looks that a light form of the grand collation will be really formed. In our view such a political situation should be neutral for the CZK in the short and medium term horizon. In long run, there is a risk that minority government (probably with a timelimited mandate) will not be able to push through any structural measures, which might hurt the growth potential of the Czech economy.

Today, however, the focus should be on macro data released in German (IFO) and the US (New home sales). We believe that (in sum) the impact of the data should be neutral for koruna, since the statistics should confirm the cycle peaked in Germany, while the US growth might slow further. However, these negatives are offset by reduced rate expectations.

(CSOB - Investment research)