Czech Republic
The drop in retail sales continues and improves the inflation outlook
Hungary
Wage growth continues to moderate
Poland
Polish figures confirm solid recovery, so far…
The week ahead
MNB cuts its base rate to all-time low
Overview
The USD appreciates, but Central Europe doesn’t mind
The drama on the Greek government debt has receded to the background, but the strong dollar, which usually had unfavourable effects on Central European markets (notably the forex market), has become an enduring reality. Central European markets also seem to have got used to this, without fearing the strong U.S. currency. Of course, the zloty, koruna, or forint weakened against the dollar this month, but these currencies did not depreciate against the euro at all.
Everything is primarily due to the fact that the strong dollar is no longer just a mirror of the weak euro. The dollar rebound is also cyclical in nature. It means that the strength of the dollar is based, amongst other factors, on increasing market confidence in the economic rebound in the United States. In this scenario, the strength of the dollar does not involve a flight out of unstable emerging markets to safe dollars, but it might be seen as a vote of confidence in the global economic recovery. This context shouldn’t be that bad for Central Europe and its currencies. All the more so, except for Hungary, which is continuing to cut rates, the Polish and Czech economies are about to start their respective official rate hike cycles. The National Bank of Poland and later the Czech National Bank are likely to open the tightening cycles in the second half of this year, and this will probably lead to at least a temporary widening of the spread of short-term rates vis-à-vis the short-term rates in the euro area. If these expectations persist on the Polish and Czech markets, Central Europe doesn’t need to be afraid of the strong dollar in the future either.
