Currency markets were strongly influenced by international developments

On global markets:

GDP data for 1Q will be released this week for both Eurozone countries and the US. As flash estimates have already been issued, the potential for surprises is small, and therefore the impact on the EURUSD likely limited. Markets will still be digesting the resignation of the British prime minister and its consequences.

CEE currencies:

Currency markets were strongly influenced by international developments last week, as minutes of the last FOMC meeting reassured investors that it will be patient and no imminent rate tightening should be expected. The subsequent weakening of the US dollar gave a lift to the zloty and the so-far ailing forint, too. The Czech currency was still somewhat weaker last week, however. This had to do with the still negative trade war and Brexit prospects, as well as the increased expectation that Czech rates will not be increased further this week. The overbought koruna (courtesy of the exchange rate regime held between 2013 and 2017) still prevents the CZK from benefitting from the large interest rate differential. If global growth uncertainties tied to Brexit and trade disputes do not improve, then the CZK could remain weak going forward. Elsewhere, currencies are roughly in line with our forecasts.

CEE rates and yields:

Yields mostly fell last week in CEE, amid the ongoing decline in German Bunds. As far as short-term rates are concerned, they showed little changes apart from the Czech Republic, where FRAs started to fall, especially on longer tenors (i.e. the 9X12 fell about 10bp last week, and almost 20bp in two weeks). Czech growth prospects could be especially negatively influenced by German industrial woes (as evidenced by last week's still poor sentiment data), and thus investors likely started to price in a lower rate trajectory. We continue to expect no further rate tightening from the current 2% repo rate. Elsewhere, rate markets were relatively calm. This week's Hungarian rate setting meeting has a bit of potential to move rate markets, but inflation releases (throughout the region) have more potential to affect markets. This is due to the fact that, currently, CEE central banks are facing a dilemma between the very strong growth stemming from domestic demand and weak sentiment indicators on important export markets and the still low external inflation environment.

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