Volatility on FX markets increases

On the radar

• The unemployment rate in Poland was published at 5.3% and in Hungary at 4.3%.
• Today at 12:00, Serbia will publish wage growth for February.
• Also today, S&P will revise its sovereign rating for Slovakia.

Economic developments

In recent weeks, various asset classes have experienced significant volatility, including foreign exchange. The EUR/USD pair saw its 30-day rolling volatility having its first spike in March, driven by U.S. economic data and concerns over the potential negative impacts of the trade war, which lead to the initial depreciation of the dollar. A second wave of depreciation, and consequently increased volatility, occurred in April as markets responded to tariff announcements, monetary policy expectations, and recent statements by President Trump regarding FED Chairman Powell. In the CEE region, the Polish zloty and Hungarian forint also depreciated against the euro as investors assessed the implications of tariffs and a potential new global trade order. In Poland, volatility was further amplified by a shift in monetary policy tone following a press conference by NBP Governor Glapinski, who hinted at earlier-than-expected monetary easing. Conversely, the Czech koruna exhibited the most moderate reaction; its depreciation at the beginning of April has since been reversed, and it is now trading at levels seen prior to the tariff announcements.

Market movements

CEE currencies appreciated further, driven by hopes of easing tariff tensions and concerns over a potential U.S. recession. The Hungarian forint benefited the most from a weaker dollar, rising 0.5% day-on-day against the euro yesterday. Meanwhile, the Czech koruna and Polish zloty each gained 0.2% against the euro. In the bond markets, 10Y yields on POLGBs continued to correct after excessive speculation on aggressive monetary easing had previously pushed the yield curve too low. Yields on 10Y ROMGBs also edged up slightly following the report of a surprisingly high fiscal deficit for 2024 earlier this week.

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