Limited impact of the Brexit vote
|Headlines
Limited impact of the Brexit vote on business sentiment in EMU reduces like hood the CNB will extend its FX policy
Following the Brexit vote the EUR/CZK pair has hovered just above the intervention floor set by the Czech National Bank (EUR/CZK 27.00). So in fact the Czech currency has been trading at the strongest levels allowed by the central bank FX policy. There are two reasons explaining the strength of the CZK: first, Czech fundamentals remain strong and secondly, financial and economic contagion from the Brexit vote has been negligible so far.
Recall that according to the preliminary estimate, the euro zone composite PMI weakened only marginally in July, from 53.1 to 52.9. The outcome was well above the market consensus of 52.5. The same picture has delivered the German Ifo this morning as it has confirmed that the business sentiment deteriorated less than market expected in June. So overall, it seems the German/euro area economy continues to grow at a moderate pace at the start of the third quarter, suggesting that the UK decision to leave the EU is having limited impact on activity for now.
Hence, the recent business sentiment reports prove some resilience of the Eurozone. Based on the resilience, the ECB does not need to start thinking about imminent expansion of monetary easing, which in the Czech case implies that the likelihood that the CNB decides to extend its FX interventions commitment (to defend the EUR/CZK floor) has been reduced. We assume the probability that the CNB commitment will be extended beyond the mid of 2017 to be around 30% at the moment.
| Currencies | % chng | |
| EUR/CZK | 27.02 | 0.0 |
| EUR/HUF | 313.2 | -0.2 |
| EUR/PLN | 4.36 | 0.1 |
| EUR/USD | 1.10 | -0.5 |
| EUR/CHF | 1.08 | -0.3 |
| FRA 3x6 | % | bps chng |
| CZK | 0.30 | 1 |
| HUF | 0.79 | -2 |
| PLN | 1.70 | 1 |
| EUR | -0.31 | 1 |
| GB | % | bps chng |
| Czech Rep. 10Y | 0.40 | 0 |
| Hungary 10Y | 3.03 | 2 |
| Poland 10Y | 2.92 | -2 |
| Slovakia 10Y | 0.53 | -1 |
| CDS 5Y | % | bps chng |
| Czech Rep. | 41 | 0 |
| Hungary | 153 | 0 |
| Poland | 97 | 0 |
| Slovakia | 42 | 0 |
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.