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CEE FX: Energy shock lifts tightening bets – ING

ING strategist Frantisek Taborsky reports that volatility in core rates and high Oil and gas prices are driving elevated tightening expectations across CEE, with roughly 125bp priced for Poland and the Czech Republic. He notes that improving rate differentials briefly supported regional FX, but with EUR/USD testing lows and energy prices rising, ING retains a bearish stance on CEE currencies.

Higher energy drives CEE repricing

"Regional markets remain under pressure as volatility in core rates and energy prices amplifies moves in CEE rates. At the peak, markets priced in an average of 15bp of additional tightening across the region. Despite a partial correction, rates remain elevated, leaving roughly 125bp of tightening priced in for both Poland and the Czech Republic."

"High oil and gas prices at yesterday’s close, alongside fresh highs in 10-year US Treasury yields, point to continued stress today. Although the backdrop is not directly comparable with the 2022 energy shock, the market response is beginning to look similar."

"With peak tightening expectations in 2022 reaching 210bp in Poland and 165bp in the Czech Republic, further repricing cannot be ruled out if energy prices continue to rise, regardless of central bank rhetoric."

"Yesterday, regional FX found support from improving rate differentials, reversing the narrowing trend in place since early September. This should help to stabilise currencies a bit. However, EUR/USD continues to test new lows and energy prices remain on the rise. Despite headlines suggesting possible US-Iran negotiations, we retain a bearish view on regional FX."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

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FXStreet Insights Team

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

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