EMEA (Europe, the Middle East, and Africa) strategist Frantisek Taborsky at ING says regional data in Poland and the Czech Republic are constructive, but Central and Eastern European (CEE) FX remains driven by US–Iran tensions and Oil prices. He argues Czech National Bank (CNB) hawkishness is stabilising Czech Koruna (CZK), with more than two hikes now priced. ING has been bullish on CZK and sees EUR/CZK potentially moving below 24.15 if conflict does not escalate.

Koruna benefits from CNB stance

"Polish data for June pointed to solid economic momentum despite the US-Iran conflict and higher oil prices, while wage and employment figures signalled a balanced labour market supporting disinflation. In the Czech Republic, the Ministry of Finance plans to cut bond issuance after stronger-than-expected demand for the relaunched retail bond programme, allowing a meaningful reduction in Czech government bond supply for the rest of the year."

"Still, despite constructive regional news, the US-Iran conflict and oil prices remain the key market drivers. While there were tentative signs of relief, CEE currencies failed to hold their gains and ended yesterday only marginally stronger. Rates markets at least appear to be stabilising after several days of elevated volatility and paying flows."

"Czech rates now price more than two Czech National Bank hikes, which looks excessive despite the CNB being the only regional central bank to hike rates in response to the US-Iran conflict. Even so, the hawkish rhetoric is helping stabilise FX and keeping the koruna ahead of CEE peers on risk-off days."

"We have been bullish on CZK for some time due to the CNB’s hawkish bias. After briefly touching 24.30 last week, EUR/CZK has been grinding lower and should gain further support from CNB board comments ahead of next meeting. Unless the US-Iran conflict escalates materially, EUR/CZK could move below 24.15."

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