CEE currencies strengthen on increased risk appetite

Headlines

Currencies: CEE currencies strengthen on increased risk appetite
Fixed Income: Polish central bankers speak about the end of the easing cycle

Czech Republic

The Czech koruna enjoyed the rally on global equity markets and firmed yesterday. This time investor’s flight to risky assets was translated to koruna gains not only against the euro, but particularly against the USD. Hence, the dollar fell yesterday to a low for the year of USD/CZK 18.737. Let us remind that the dollar has lost 16.7% against the koruna this year. This week, the domestic calendar is almost empty for the koruna, so the EUR/CZK pair will watch global and regional forex markets to get fresh stimuli.

The Czech yield curve steepened in thin trading yesterday. Bullish sentiment in equity markets and huge shortfall of the Czech public budget were negative factors for the long end of the curve. Recall that the budget deficit has reached CZK 71 bn for the five first month of this year, so twice as large as the deficit for the same period of 2008.

There no important domestic events on the agenda for today, but there will be an important bond auction of a 10Y benchmark tomorrow. Though we expect solid demand in the auction tomorrow, today the long end might feel some pre-positioning ahead of the auction, which should keep long bonds under pressure.

Hungary

The Hungarian forint closed the week with a slight recovery and this week’s strong start on the equity markets paints a better outlook for the currency. The forint touched the week’s lowest level at 286.50, but then recovered in the afternoon to 282-283. This morning it seems to open at 278, close to the 3-month record high it set two weeks ago at 276. There are not much local factor in trading nowadays, thus the pair might follow global sentiment.

The Hungarian bond market mirrored the currency on Friday and yield levels stayed overall unchanged. Interest is very low towards Hungarian bonds and this may allow the market to move in a calm, gradual way.

Poland

The zloty took profit from relatively higher appetite for risk on Monday. Also further growth in Polish PMI brought some confidence to the market after GDP figures proved the largest regional economy was still growing at the beginning of the year. Beside that, also rather hawkish comments form NBP pointing to the inflationary risk driven by the recovery in the second half of the year played a role.

The domestic calendar is more or less empty for this week. Hence we believe the global market sentiment to remain the main market-driver for the upcoming session. After the S&P 500 broke above the 200-day average, we keep our positive short term bias – the pair could get below 4.40 EUR/PLN soon.

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