CZK: No reason for koruna to appreciate – Commerzbank

The extra impetus which CE3 currencies are receiving as a result of the appreciating Euro (EUR) paused briefly as the euro corrected lower below the 1.10 level, Commerzbank's FX Analyst Tatha Ghose notes.

Koruna is not set to continue appreciating

“Alongside peers such as the Hungarian forint, the Czech koruna, too, slightly weakened as a result. Against this backdrop, the upside surprise from Czech PPI for July hardly had any counter-effect. Not only because there was nothing significant within the PPI data, but also because the currency had already rallied somewhat in response to a preceding upward surprise of the CPI.”

“As far as the PPI surprise is concerned, prices rose back to positive month-on-month change after some months of outright month-on-month deflation. Naturally, it should not be expected that price levels would continue to fall every month, hence some reversal in that extra-dovish trend had to be expected.”

“The data still argue for some further rate cuts, even if these are not urgently needed to combat below-target inflation. To the extent that a month ago, such fears were prominent, such fears have now been reversed. This justifies a modest koruna rally. But, the bigger effect is probably the euro rally itself. Once that has peaked, we should not expect the koruna to continue appreciating.”