The USD held the upper hand during a dark summer and as market expectations were building for the Fed to start normalizing policy in the near future. After hitting EUR/USD 1.17, technical support kicked in with at the same time the ECB emerging from the shadows but only to disappoint the eurobulls. The upcoming FOMC meeting on September 22 will provide the next impetus.
EUR/GBP escaped the downward trend channel as sterling more or less discounted a very gradual normalisation path by the Bank of England. The euro then took the upper hand the same way (and timing) it did against the USD. That recovery lead the pair to test 0.86 but a break for now remains difficult.
USD/JPY is going nowhere around the 110 pivot with both enjoying a safe haven bid from time to time. Rising real US rates in theory should support the USD over the JPY. However, the yield pattern is so choppy and gradual, that, for now at least, it doesn’t.
Three CE countries have one thing in common: above-target inflation. The way central banks respond differs though. The Czech Republic started tightening in June. It has hiked rates twice (2x25bps). Three more at every remaining meeting in 2021 is a near-done deal. The CNB even mulls going faster (50 bps). The Czech krone thus remains very resilient amid rate support. EUR/CZK 25.3 is crucial and looks vulnerable in the medium term.
The MNB started practicing what it preached and has hiked its policy rates with 90bps since June (3x30 bps) in an effort to tackle inflation. It is also phasing out some crisis measures while adjusting the bond buying programme, making it more flexible for a changing (improving) environment. The forint clearly enjoyed the MNB’s determination, rallying back sub EUR/HUF 350. EUR/HUF 345 is strong support.
High inflation and drawing inspiration from the CNB and MNB, markets started discounting rate hikes by the Polish central bank as well. The governor however recently poured cold water over such bets, saying it would be very risky. EUR/PLN bounced off support around 4.50.
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