Headlines
Currencies: Zloty may enter ERM2 in the second half of the year
Czech Republic
The Czech koruna moved sideways most of yesterday’s session, so it actually decoupled from its regional peers. Both the June CPI and employment figures had negligible impact on forex trading.
Interestingly, President Klaus vetoed a crisis-relief law yesterday that includes a scrap subsidy for old cars. The vetoed measure would also speed up depreciation and increase jobless payments and welfare support for children. Klaus said that the scrap measure deforms the automobile market and favors one industrial segment over others. While we agree, we think that this is also good news for Czech bonds and indirectly for the koruna, as all proposed measures would widen the budget deficit, while positive effects for the economy would be very weak.
Given the empty domestic calendar the koruna will focus on developments in core markets, especially on behavior of equity markets after today’s consumer confidence release in the US. Any weakness in global equities would harm the koruna too.
| Currencies | Close | change |
| EUR/CZK | 26.06 | 0.3% |
| EUR/HUF | 277.1 | 0.1% |
| EUR/PLN | 4.374 | -0.4% |
| USD/PLN | 3.098 | -2.0% |
| EUR/USD | 1.392 | -0.1% |
| USD/JPY | 92.6 | -0.8% |
| Bonds 2Y | Close | change |
| Czech Rep | 2.83 | -0.02 |
| Hungary 3Y | 9.36 | -0.22 |
| Poland | 5.28 | -0.07 |
| Slovakia | 2.64 | 0.04 |
| Eurozone | 1.22 | 0.03 |
| USA | 0.91 | -0.03 |
| Bonds 10Y | Close | change |
| Czech Rep | 5.82 | 0.00 |
| Hungary | 9.26 | -0.25 |
| Poland | 6.22 | -0.01 |
| Slovakia | 5.10 | -0.06 |
| Eurozone | 3.29 | 0.02 |
| USA | 3.35 | 0.01 |
Hungary
The Hungarian forint had a quiet day overall after the first attempt to break the 280.00 level failed early in the morning. The pair then recovered to 274.50 and there it turned around again and settled down between 275.00 and 276.00.
Another good foreign trade data from May could have played a role behind the recovery as the monthly trade balance posted another €479.5m surplus. The currency’s gain was limited by the vice governor’s comments, which has opened the way for rate cuts for the coming months.
Poland
The Polish zloty was stronger due to supportive comments from the Finance Ministry on Thursday. Finance minister Jacek Rostowski said that Polish zloty may be stable enough to enter the ERM2 in the second half of this year. Nevertheless Rostowski also warned that the government debt could reach 55-60% GDP, which could pose a risk to the fiscal criteria fulfilment. The pair broke back below 4.40 EUR/PLN and got stuck around the 4.35 threshold.
Today the calendar of domestic events is empty. We believe the shaky sentiment on the global equity markets should prevent the pair from further gains at least for now. We bet on calmer trading above 4.35 EUR/PLN.
