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Currencies: Key Polish voter supports interest rate stability
Czech Republic
The Czech koruna developed a sideways trading pattern as the EUR/CZK pair moved just above the 25.80 level. While the earnings season has remained on top of the market’s agenda, there were two interesting news events recently.
First, the finance ministry will reportedly announce today that it now expects the Czech economy to contract by 4.3% this year and to rise next year by 0.3%. The ministry’s previous forecast, from April, called for negative growth this year of 2.3% and GDP growth next year of 0.8%. We think that the new FinMin forecast is now closer to reality, though we are not so pessimistic. Nevertheless, we like the approach of the Czech Finance Minister Janota, who is traditionally conservative in GDP estimates.
Secondly, the main opposition party and a hot candidate for winning October’s parliamentary election, the left-wing ČSSD, unveiled its final election program. It calls for adopting the euro by 2015, but it does not say how the budget deficit will be reduced from the current 5% of GDP to the required 3% threshold. Moreover, CSSD’s top economic expert said that a decision on budget cuts will not be made until 2011 or 2012. In our view, this information just confirms that the euro adoption process has been put on hold in the Czech Republic as the left wing of the political spectrum is not ready to make necessary budget tightening, while the right wing is satisfied with the koruna.
| Currencies | change | |
| EUR/CZK | 25.83 | 0.0% |
| EUR/HUF | 271.7 | 0.0% |
| EUR/PLN | 4.267 | 0.0% |
| USD/PLN | 3.017 | 0.0% |
| EUR/USD | 1.420 | 0.0% |
| USD/JPY | 93.8 | 0.0% |
| Bonds 2Y | change | |
| Czech Rep. | 2.80 | 0.00 |
| Hungary 3Y | 9.02 | 0.00 |
| Poland | 5.06 | 0.00 |
| Slovakia | 2.51 | 0.00 |
| Eurozone | 1.25 | 0.00 |
| USA | 0.93 | 0.00 |
| Bonds 10Y | Change | |
| Czech Rep. | 5.82 | 0.00 |
| Hungary | 8.79 | 0.00 |
| Poland | 6.19 | 0.00 |
| Slovakia | 5.15 | 0.00 |
| Eurozone | 3.37 | 0.00 |
| USA | 3.49 | 0.00 |
Hungary
On Tuesday, the EUR/HUF currency pair showed some intra-day volatility, but after all the changes at the end of the day were limited. There were no domestic eco data to guide de price action. The forint tried to build on the positive momentum from the previous days early in the session, but as was the case for most other currencies in the region, the forint rebound ran into resistance and the EUR/HUF pair settled in the 272 area. Nevertheless, the underlying sentiment toward the Hungarian currency remains constructive.
Today, the calendar of eco data in Hungary is again empty. So, global sentiment will continue to set the tone for trading in the Hungarian currency. Friday’s retail trade data are the next domestic factor to watch out for;
Poland
The Polish zloty went through some profit taking on Tuesday. The pair failed to go further below 4.24 EUR/PLN as the rally ran out of steam, for a while at least. The zloty failed to profit from rather positive central bankers’ comments. Key swing voter on the MPC board Jan Czekaj said that rates may remain unchanged until the current Council ends early in 2010. We are happy to see him clearly shifting to the hawkish camp as it supports our baseline scenario of interest rate stability for the rest of the year. Beside that another board member, Marian Noga, said in a TV interview that a 2014 euro target is pretty realistic.
Today the markets may stay in wait and see mode ahead of the retail sales. The Polish zloty has already approached very strong euro-support levels at 4.2103 EUR/PLN, which may be quite difficult to break. The battle around these levels should be more dependent on the further development of global equity markets and less on the domestic data-flow.
