CEE FX: Higher rates seen cushioning currencies – ING

ING’s Frantisek Taborsky explains that a surge in energy prices, a jump in US 10-year yields to 5% and a stronger Dollar have hit CEE currencies and pushed local rates higher. He argues higher front-end rates should now help stabilise CEE FX, while outlining views on EUR/CZK near 24.300, EUR/PLN could stabilise below 4.340, and EUR/HUF potentially rising further above 368 before NBH support.

Regional FX pressured by global shock

"Yesterday’s shock – a post-weekend surge in energy prices, a rise in the 10-year US Treasury yield to 5%, and a stronger US dollar – hit CEE markets hard, weakening currencies and sharply repricing rates higher across the curve."

"Front-end markets in the CEE3 priced in an additional 10-20bp of rate hikes on average. Although risk-off sentiment is likely to persist today, higher front-end rates should help cushion currencies against further losses and create scope for stabilisation."

"Our EUR/CZK view is broadly unchanged: we expect the pair to approach Thursday’s CNB meeting near 24.300, with further upside if the central bank adopts a dovish tone versus market pricing, which is our baseline."

"The EUR/PLN rate differential recorded the region’s largest increase yesterday and the zloty could stabilise below 4.340 as markets look through dovish comments from MPC members after the NBP decision."

"EUR/HUF remains vulnerable, reflecting its typically high sensitivity to gas prices, and may rise further. With the Hungarian market still pricing in roughly one rate cut, the forint could again test levels above 368. Support may not emerge until next week’s NBH meeting, which we see as carrying hawkish risks."

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