On global markets:
The main scheduled event for the EURUSD this week will be without question the rate decision in the US. A rate cut is fully priced in by markets. More exciting will be the indications on the outlook, not least from the survey among FOMC meeting participants. Any news on Brexit could also give the market direction, but these are unpredictable.
Free-floating currencies in the region tend to follow a somewhat different path recently. The Polish zloty managed to recover from August lows, while the Hungarian forint remained volatile around all-time lows. As for the latter, the recent inflation print puts the central bank into a more comfortable position and removes pressure to tighten policy. We see no change in MNB policy in September. However, we also do not share some current views that easing could come soon. Overall, the forint could remain volatile. As for Poland, the appreciation came as bond yields and shorter-term rate expectations also edged up somewhat, while Hungarian rates and yields declined. The Romanian leu also slightly declined, which also came with some yield and rate declines. The Czech koruna stayed relatively stable, but around somewhat weak levels. An interesting aspect of this is that expectations for rate easing are continuously being priced out on the Czech market. We see the koruna at somewhat stronger levels in the coming months. On a general note, FX markets are watching the Fed decision this week.
CEE rates and yields:
There were strong fears that a possible disappointment from the ECB could trigger yield increases not just on the Bund market, but also for CEE bond markets. While yields already edged up before the Thursday decision, only Bund yields reacted to the ECB meeting as feared, as CEE yields, on average, did not go up as much as Bund yields did, or even showed some decline. The ECB still introduced measures, so we feel that our yield forecasts do not really need adjustment. Rate markets are also looking interesting in CEE: in August, rate cut expectations intensified in Poland and especially in Czechia, but in recent weeks, we see this reversing. The increase in rate expectations is especially strong on the Czech market. We do not expect the CNB to change rates in the coming months. As for Serbia, after the rate cuts during the summer, the NBS did not continue easing, so the key rate was left unchanged at 2.5%. We expect this to remain unchanged until the year-end, but note that the stance of the monetary policy should still remain accommodative and growth-supportive. Poland also did not see any rate change as expected, keeping the 1.5% policy rate unchanged. While inflation is on the rise in Poland, even the NBP started to acknowledge external growth risks. Thus, we see the target rate flat until 2020 and beyond.
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