The Czech koruna slipped in yesterday’s session to 28.65 EUR/CZK

The Czech koruna slipped in yesterday’s session to 28.65 EUR/CZK as an interview with an S&P analyst for Central Europe revealed the risk of a downgrade of the credit rating outlook for the Czech Republic. The rating agency lifted its outlook on the A- Czech long-term foreign-currency debt rating to positive in November as result of the stronger than expected economic performance. Now S&P seems to be worried about the increase in mandatory spending due to vast social spending legislature being passed ahead of the summer elections.

Nevertheless we expect the impact on the Czech currency to be short-lived as the expectation of a strong economic performance should overshadow current rating doubts. Hence we see some space for trimming the losses today and the koruna could shift back below 28.20 EUR/CZK. CZK retreats on warning from S&P.

(CSOB - Investment research)