The Czech koruna weakened to six week lows

The Czech koruna weakened to six week lows - above 28.42 EUR/CZK - after the release of July's balance of payments and especially its current account. The C/A deficit reached CZK 23.5 bn and it markedly exceeded the market consensus by 7bn. The annual rolling C/A deficit widened to 3.4 % of GDP but only 0.5% of GDP if adjusted for reinvested profits of companies under foreign control.

The koruna recovered in the afternoon and closed at 28.39 EUR/CZK. In the morning the koruna started weaker as the market was scared by the CNB vicegovernor Niedermayer criticizing the budget proposal. We think the Czech currency will fluctuate above the level 28.40 EUR/CZK today. No economic data will be released and so regional sentiment should be a key driver of the Czech forex and bond markets.

(CSOB - Investment research)