CZK Poised to Gain as CNB Enters Blackout, Eyes on Hungary’s Budget Vote
CZK Poised to Gain as CNB Enters Blackout, Eyes on Hungary’s Budget Vote
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CEE: CNB blackout period and budget vote in Hungary
Today's regional focus is on Hungary and the Czech Republic. Wage numbers in Hungary will be released this morning, closely watched by the central bank. Parliament will also vote on the draft state budget for next year, resulting in a 3.7% GDP fiscal deficit.
In the Czech Republic, we should hear the bulk of the Czech National Bank board's opinions ahead of tomorrow's start of the blackout period. Last week, we heard from two board members, including the governor, suggesting a pause in the rate cut cycle in June and an open discussion of a rate cut in August. However, the governor's words suggest a longer pause given the surprisingly high inflation and outlook for the months ahead. We should hear from other board members today and tomorrow, and we expect a hawkish tone here as well.
In CEE markets, we see improving conditions for another FX rally. As we discussed yesterday, some spike in market rates due to the threat of higher energy prices from developments in the Middle East, in our view correctly reflects expectations of more hawkish central banks in the region. At the same time, we do not see a significant flight to quality globally and EM currencies strengthening generally. Moreover, higher EUR/USD clearly favours CEE currencies and we expect more gains here across the board in the days ahead. The CZK in particular should get attention today, supported by hawkish CNB views, which should push EUR/CZK below 24.750.
Frantisek Taborsky
PLN: Zloty remains cheap after election
While the HUF and CZK currencies are near their local strongest levels and have maintained some gains this year, the PLN has underperformed its peers and is essentially the only currency unchanged against the EUR compared to the start of the year. Given the hawkish bias of the National Bank of Poland in recent weeks, we believe the problem is a persistent premium in EUR/PLN coming from political uncertainty post-election. The interest rate differential itself suggests levels roughly around 4.230-240, indicating a 1% PLN rally if the market unwinds this political factor.
We don't expect any immediate impact on fiscal or general government policy, and after last week's successful confidence vote, we don't see much reason for PLN to remain at weaker levels. Moreover, the central bank is suggesting that another rate cut is more likely in September, while the market still prices in decent odds for July. Therefore, we see good reasons for PLN catching up with CEE peers.
