Headlines
Currencies: Koruna eases as CNB sounded dovish while the budget is not a done deal
Fixed income: CNB on hold, but two Board Members voted for a rate cut
Czech Republic
The Czech koruna eased as the Czech central bank sounded dovish and as the Parliament has been unable to approve an austerity budget submitted by the interim government. As a result the EUR/CZK pair bounced above the 25.20 level at the end of the session.
As concerns the CNB meeting, the bank left interest rates unchanged as expected. However two Board members voted for a (25) bps rate cut. This was a surprise. The CNB’s economic assessment indicated that risks (for inflation) are moderately on the downside as the strong koruna and recent lower inflation improve the outlook. Governor Tuma warned that the lack of fiscal improvement could lead to higher rates. Nevertheless, we consider yesterday’s message of the CNB to markets as being dovish. This might not necessarily lead to another cut, but the market could start betting on it.
Such a scenario will be definitely positive for the fixed income market – particularly for the front end of the curve, but it might ease appreciation appetite of the koruna in the near term future.
| Currencies | change | |
| EUR/CZK | 25.20 | 0.0% |
| EUR/HUF | 271.3 | 0.1% |
| EUR/PLN | 4.212 | 0.6% |
| USD/PLN | 2.863 | 1.5% |
| EUR/USD | 1.468 | -0.5% |
| USD/JPY | 90.6 | -0.1% |
| Bonds 2Y | change | |
| Czech Rep. | 2.54 | 0.11 |
| Hungary 3Y | 7.59 | -0.10 |
| Poland | 5.14 | 0.01 |
| Slovakia | 1.84 | 0.00 |
| Eurozone | 1.21 | 0.00 |
| USA | 0.94 | -0.03 |
| Bonds 10Y | change | |
| Czech Rep. | 5.03 | -0.04 |
| Hungary | 7.90 | -0.09 |
| Poland | 6.26 | 0.04 |
| Slovakia | 4.56 | -0.07 |
| Eurozone | 3.29 | -0.02 |
| USA | 3.37 | -0.03 |
Hungary
The Hungarian forint appreciated slightly and touched the 269.50 level late afternoon, but the pair returned quickly to this week’s range between 271.00 and 272.00. The falling oil price could remain an issue for emerging markets. Hence the risk is probably for weakening.
The Hungarian fixed income markets did not change either. The money market has went a bit further and had priced in almost 100bp rate cut for Monday, while the economist consensus view is for a 50bp move. It seems that the July 100bp move opened the door for rate cut speculation and some investors again take into account a high probability for such an outcome. This situation could however be interpreted as a kind of ‘rate cut bubble’, which the central bank may not want to feed. Instead, it may opt for a more cautious, gradual rate easing cycle with another 50bps step.
Poland
The Polish zloty was testing 4.21 EUR/PLN on Thursday. Finally the pair closed below the important resistance, which is definitely positive for the Polish currency. The negative sentiment was mostly driven by worsening sentiment on global equity markets. A warning from Moody’s could have added to the pessimism. The agency currently rates Poland at A2 with stable outlook and according to comments that status is quite safe in the short term. Nevertheless it gave the Polish administration a mild warning that it should pursue reform after the 2010 election. Otherwise its current rating status could be questioned. Beside that, there were no major domestic events. The Central bank minutes confirmed that the rates remained flat in august mainly on growing inflation concerns.
Today the domestic calendar is empty. We expect the zloty to follow the cautious come-back of risky assets on the stage. Nevertheless we continue to monitor closely any attempts of break above 4.21 EUR/PLN.
