Czech central banker against fast adoption of the euro

Headlines

Currencies: CEE currencies under heavy downward pressure
Fixed Income: Czech central banker against fast adoption of the euro

Currencies

The Czech koruna continued to loose ground as inflows of bleak economic data both from Central Europe and core markets continued. Hence, it is clear that prospects of the export-oriented Czech economy are not rosy. Moreover, it is quite obvious that the central bank has shrugged off currency’s weakness so far, it is ready to deliver more interest rate cuts. So the koruna remained under downward pressure and the EUR/CZK pair is just testing the 28.0 psychological levels. If broken, we might see another key technical resistance at the EUR/CZK 28.22 level.

The Hungarian forint remained in the wide range of 280 and 285 during the day with a weakening bias towards the closing. Turnover is modest and the market has been following the general emerging market trend. Selling pressure has eased somewhat, but the market has not been established a new trend and thus the currency could continue its range bound trading.

On Thursday morning, it first looked as if the zloty would still be able to profit from the (temporary) easing in global market tensions. However, this relative calm was short-lived. European markets only showed some guarded gains compared to the positive tone in the US late on Wednesday. On top of that, the Polish eco headlines were not really inspiring either. Polish finance Minister Rostowski said that Budget revenue was lower than planned last year. He also indicated to expect the Polish economy to expand faster than the 2% EC commission forecast but admitted that the government forecast of 3.7% may change, should economic conditions warrant it. Despite pressure on the budget, he confirmed that Poland remains absolutely determined to adopt the euro on Jan 1, 2012. EUR/PLN declined further later in the session and closed the trading session in the 4.36 area.

Today, the eco calendar is again empty. So, global factors and the technical picture continue to guide EUR/PLN trading. This global environment is not really inspiring. EUR/PLN comes close to the 4.40 area at the start of trading this morning. CBP governor Skrzypek in an interview this morning said that the drop in the zloty is not justified by the fundamentals. However, the short-term momentum clearly stays zloty negative.

Fixed income

The Czech yield curve in above average volumes steepened. The short maturities gained mainly on growing belief that the CNB may continue to cut rates aggressively. The longer maturities on the other hand were under moderate pressure. Today, the calendar is empty. The article of central banker Holman arguing against the fast adoption of the euro might be widely ignored. Hence we bet on a moderate correction of yesterday’s steepening.

The Hungarian bond market continued its positive trend and yields lowered another 20bps on the day with the most active 5-year bond yielding now just above 9%, while the 10-year yield fell to 8.3%. Primary dealers will talk with the debt management agency later this afternoon and restart of the auctions could be an issue there. This could be negative for the market in the short-run, but agency is expected to auction only small amounts, like Ft10bn per auction first, which could probably be quickly bought either by local or international investors.

On Thursday, Polish interest rates moved materially higher. The move was most pronounced at the longer end of the curve. The price action more or less in line with what happened in core markets. The steepening trend of the yields curve remains in place.

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