EUR/GBP fell below the 0.84

KBC Market Research Desk KBC Bank

The Fed’s focus on inflation gave the USD wings in autumn, especially vs a softer euro. Quite some US policy tightening has been discounted by now, allowing EUR/USD to (painfully) slowly bottom out. For a real comeback, the ECB should probably give a clear go-ahead for scaling back support. Until then, the downside looks vulnerable. 1.1163 is key support.

Sterling rallied as the BoE pressed on with a rate hike last month. Markets discount a significant chance of a back-to-back move in February. EUR/GBP fell below the 0.84 big figure with 0.8277 as high-profile support.

An improving (equity) sentiment as well as surging core bond yields both hurt JPY and supported USD. As a result, the pair hit the strongest levels since 2017.

CNB again surprised markets with a bigger-than-expected 100 bps rate hike in December. Its unprecedented determination to tackle inflation unleashed the Czech krone from its shackles at the EUR/CZK 25.2 area. The Czech currency is trading at the strongest levels since 2012. Technical charts favor more gains to EUR/CZK 24.

Hungary’s central bank reintroduced the one-week deposit rate as the main policy instrument in killing inflation and stem the HUF downfall. It raised rates on this flexible tool in several steps to 4%, which is considerably higher than the regular policy rate of 2.40%. It helped ease downward forint pressures. EUR/HUF retreated from its all-time high at 370 to 356.

Zloty bulls initially weren’t convinced by the central bank’s measured (50 bps) hiking pace in the last two meetings. However, the NBP hinted at more to come while overall risk sentiment improved as well. This supported the zloty in leaving the 12-year lows behind. Polish money markets expect a peak policy rate of >4%.

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KBC Market Research Desk

KBC Bank

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