Koruna fails to firm on positive foreign trade data and hawkish comments

Headlines

Currencies: Koruna fails to firm on positive foreign trade data and hawkish comments
Fixed Income: Sell-off on the Czech bond market continues

Czech Republic

The Czech koruna moved sideways on Wednesday lacking strong stimuli to move either way. Hence, the EUR/CZK pair remained in tight range just below the 26.30 level.

Today, the CSO has released the November foreign trade balance, which posted a healthy surplus of CZK 14.5bn. This could be taken as a positive signal for the koruna, which however failed to react too the release. The koruna even eased slightly despite quite a hawkish comment made by CNB vice governor Singer. Both signals might indicate that the market sentiment is quite bearish in the Czech forex market.

The Czech yield curve continued to steepen in a bearish fashion as the long end added 7 bps, while the front end moved up just about 3 bps. There are three factors, which could reinforce the bearish sentiment on the Czech bond market: first, the market is still catching up the Christmas sell-off in core markets, secondly some early pre-positioning ahead of heavy supply is already taking place now, and last but not least there were two hawkish comments from the Central bank. CNB vice governor Singer said yesterday evening that he would not expect the CNB often to change its interest rate before the big central banks do so, but that this time it might not be this way.

Hungary

The Hungarian forint remained broadly unchanged close to the 269.00 level on Wednesday. The only domestic news was the increase of the unemployment rate to 10.5% from 10.4%. This is in line with the expected path as the economy will not be able to generate jobs until about the second half of 2010.

The Hungarian fixed income was not active either and yields hardly moved. Probably market participants are getting increasingly cautious before the elections due in April and volume will remain low in the coming weeks.

Poland

The Polish zloty went through pretty boring session. As there were no domestic news to guide trading, liquidity was very low and the pair stayed in an extremely narrow range 4.09 – 4.10 EUR/PLN. In contrast with the koruna it failed to profit from the soft Fed minutes and subsequent weakness of US dollar.

Today the zloty ceded some ground as the surprising monetary tightening in China and weak German retail sales could weigh on regional sentiment. Nevertheless the volume should be low as most investors stay in wait and see mode ahead of the US payrolls scheduled for Friday afternoon.

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