CEE FX: Prolonged pressure from strong Dollar – ING

Frantisek Taborsky at ING argues that the stronger US Dollar (USD) following the Federal Reserve (Fed) meeting is clearly negative for emerging markets, keeping Central and Eastern European (CEE) currencies under pressure. He expects further regional weakness, with EUR/PLN likely to move higher again, EUR/HUF vulnerable unless the NBH turns hawkish, and EUR/CZK seen rising above 24.350 after a dovish Czech National Bank (CNB) outcome.

Regional currencies vulnerable to Fed and energy

"After yesterday’s EUR/PLN spike, which far exceeded our bear expectations, the zloty may stabilise before the pair moves higher again. EUR/HUF appears more vulnerable, with current global conditions leaving room for further upside ahead of next week’s NBH meeting."

"A hawkish decision, such as pausing rate cuts and lowering the inflation target, could, however, offer some support to the forint."

"Today, attention turns to the CNB meeting, where rates are expected to remain unchanged at 3.75%. Although conditions across CEE have shifted markedly in recent days, we expect the CNB to wait before changing its tone."

"The outcome is therefore likely to be dovish relative to market pricing, which currently implies more than four rate hikes. EUR/CZK enters the meeting just above 24.300, in line with the expectations in our CNB preview published last week."

"A dovish message, combined with adverse global factors, should push the pair higher and could take it above 24.350 today."

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