Currencies

The ECB refuses to join the global shift from ultra-easy policy to normalization despite solid demand and surging inflation. On currency markets, the euro pays a heavy price. EUR/USD gave up several supports, including the crucial one at 1.129.

EURUSD

The pound recovered soon from the BoE’s disappointment not to raise rates. Markets have every reason to assume it’s only postponing the inevitable. EUR/GBP 0.84 is being tested and could give in on both sterling resilience and euro weakness.

EURGBP

The ongoing taper process and increased rate hike odds in the US spurred USD/JPY towards the highest levels since 2017. USD/JPY 115 serves as a short-term resistance area.

USDJPY

The CNB shocked markets with a whopping 125 bps rate hike to 2.25% in November. Once again, the CZK gains were not excessive and even reversed as concerns about a potential lockdown grow with CE countries deep into a 4th Covid wave.

EURCZK

The MNB stepped up the tightening pace from 15 bps to 30 bps in November (base rate now 2.10%). It also announced other technical measures to tighten policy further. The HUF was not impressed, testing all-time lows around 370. It may prompt more aggressive MNB action to prevent a self-reinforcing loop between a weak currency and inflation.

EURHUF

The MNB stepped up the tightening pace from 15 bps to 30 bps in November (base rate now 2.10%). It also announced other technical measures to tighten policy further. The HUF was not impressed, testing all-time lows around 370. It may prompt more aggressive MNB action to prevent a self-reinforcing loop between a weak currency and inflation. The Polish central bank continued to raise rates with a more-than-expected 75 bps to 1.25%. The zloty’s gain was short-lived. Markets rightly believe unabating inflation requires more decisive action but are cautious to frontrun a notoriously dovish NBP. The zloty’s upside in current market circumstances, accompanied by legal uncertainty (EU dispute), seems limited short-term.

EURPLN

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This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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