FX Daily: Dollar bounce has been lacklustre | articles

Today, the region will be busy on the monetary policy side. First, we will see the decision of the Czech National Bank. After yesterday’s lower-than-expected inflation, the rate cut is basically a deal done by 25bp to 3.50%, in line with market expectations. The bigger focus will be on the press conference and the new central bank forecast. Even after the lower inflation numbers, dragged down mainly by food and energy prices, we expect forward guidance to be hawkish, while the new forecast should be more mixed.
In Poland, we will also see the decision of the National Bank of Poland. We expect a 50bp rate cut to 5.25%, in line with expectations, and the opening of the rate-cutting cycle after a year and a half pause. However, NBP communication has not been clear in recent weeks and more options on both sides are on the table compared to our forecast. There is also the release of the statement today which could give us a clue on the next direction and forward guidance. The governor’s press conference is tomorrow, which should be the main event.
In Romania, we continue to monitor the post-election market reaction. Yesterday EUR/RON jumped above the key 5.00 level and almost touched 5.10 after years of stability. Our economists maintain an end-year target of 5.05, but in the short term we are likely to move in the 5.05-5.10 range depending on market pressure on the RON. But 5.10 seems to be the hard line for now and FX will have more flexibility in the political environment.
CEE currencies were hit by global risk-off sentiment yesterday but later showed resilience again and not much has changed. As we approach today, we maintain the same perspective we’ve held over the past few weeks: the PLN/CZK exchange rate is declining, reflecting the divergent monetary policies of Poland and the Czech Republic. Although 50bp is priced in in Poland, we believe the start of the cutting cycle will have a dovish tone, pushing EUR/PLN closer to 4.300. On the other hand, the CNB will remain hawkish despite lower inflation, which should support EUR/CZK below 24.900.
Frantisek Taborsky
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