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Currencies: MNB is ready for another interest rate cut
Czech Republic
The Hungarian forint finished the week in a positive mood and the optimistic global sentiment helped it to set a new recovery high of 265.50. Prospects for a global recovery seem to help carry trades to become more attractive and the close to double digit central bank rate puts the forint among one of these.
The central bank’s policy making body will meet today and will likely cut the base rate from 9.50%. The most likely step is the regular 50bps move with a dovish statement about future possible cuts. The FRA market is fairly bullish on the base rate and implies around 7% level by the year-end. Deep rate cut expectations may also help the currency to remain stable as any weakness could be paired by softening rate cut expectations and higher money market curve, which would support the currency.
| Currencies | change | |
| EUR/CZK | 25.46 | -0.4% |
| EUR/HUF | 266.1 | -1.0% |
| EUR/PLN | 4.169 | -1.3% |
| USD/PLN | 2.956 | -1.0% |
| EUR/USD | 1.425 | 0.4% |
| USD/JPY | 94.8 | 0.0% |
| Bonds 2Y | change | |
| Czech Rep. | 2.80 | -0.02 |
| Hungary 3Y | 8.90 | -0.08 |
| Poland | 5.04 | -0.02 |
| Slovakia | 2.49 | -0.09 |
| Eurozone | 1.37 | 0.04 |
| USA | 1.03 | 0.00 |
| Bonds 10Y | Change | |
| Czech Rep. | 5.54 | -0.04 |
| Hungary | 8.67 | -0.05 |
| Poland | 6.18 | 0.02 |
| Slovakia | 5.16 | -0.06 |
| Eurozone | 3.50 | 0.03 |
| USA | 3.70 | 0.02 |
Poland
The Polish zloty strengthened further thanks to continuing optimism on the global equity markets. The Polish prime minister said that the worst seems to be over in Poland and that the economic crisis is less dangerous in Poland than elsewhere. The pair got below 4.20 EUR/PLN and from the technical point of view the picture remains clearly bullish.
That is why we see some strengthening ahead of us at the beginning of the week. Next important targets are around 4.00 EUR/PLN neighbourhoods. As it looks that the global equity markets stay optimistic, the zloty could approach these levels soon. Furthermore we expect the NBP, scheduled for Wednesday, to stay on hold and deliver rather hawkish comments.
Czech Republic
After breaking below the key technical resistance at the 25.65, the EUR/CZK pair extended its bearish trend and it slipped even below the 25.500 level. The price action was once again motivated by bullish sentiment on global equity markets, which supports all assets in Central Europe.
Today, and even the whole week the domestic calendar is empty, so the koruna will watch the forint and the zloty as they might react to central bank meeting in respective countries. The strong koruna and today’s cut in Hungary might, however, stimulate domestic rate-setters for fresh talk, which could unveil their positions ahead of the upcoming CNB meeting next week.
Technically, we think that the drop below the 25.65 level poses a risk that the EUR/CZK pair will move closet to the 25.0 level.
