EUR/CZK: Further risk of Koruna depreciation in 2024 – Commerzbank

FXStreet Insights Team FXStreet

Economists at Commerzbank expect EUR/CZK to drift slightly lower through 2023 before reversing trend once again in 2024.

End of FX interventions is unlikely to make any difference to the exchange rate

The central bank (CNB) announced an end to its FX intervention regime. This means that the central bank will not use FX intervention to prevent currency weakness. But, since no interventions were recently used, this makes no practical difference. Furthermore, if a new emergency situation were to arise, CNB could make another announcement and restart interventions. Hence, any currency weakness resulting from a kneejerk reaction in the market is likely to reverse over the coming quarters.

In 2024, we see further risk of Koruna depreciation. The key risk is that inflation may not moderate fully to target, which will once again affect CNB’s credibility. What is more, controversy has broken out between government and central bank because the latter criticises the expansionary fiscal stance for being the main culprit behind high inflation. Such developments could add volatility to the CZK again next year if inflation were to prove stubborn as we anticipate.

Source: Commerzbank Research

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