FX Daily: Dollar floor crumbles as Fed terminal rate re-priced | articles

This week we will see a lot of hard data from the economy that could give us a clue how the economic recovery is going in a region that has so far been rather disappointing.

The main focus today will be July inflation in Turkey. Our economists expect it to fall from 71.6% to 61.4% year-on-year mainly due to the base effect. In the Czech Republic, retail numbers for June will be released, which we expect to be below market expectations.

Tomorrow we continue with retail sales in Hungary and industrial production in the Czech Republic and on Wednesday industrial data in Hungary. The National Bank of Romania is scheduled to meet on Wednesday. Our economists expect rates to hold steady at 6.75% after the rate cut at the previous meeting, which is also the consensus but no doubt another rate cut will be on the table.

On Thursday in Hungary, we will see inflation numbers for June. Here we see an increase from 3.7% to 4.1% YoY, a tenth above market expectations, and higher core inflation as well.

On Friday, the Czech National Bank will release minutes from its last meeting when it cut rates by 25bp to 4.50%.

Despite the rich calendar in the CEE region last week, the story is clearly on the global side and that will very much be the story this week as well. CEE FX remains very mixed reacting differently to the global rally in the rates space. No doubt we will see reverberations of Friday’s big move today which may change the picture significantly. However, the starting position points to a further strengthening in the Czech koruna, some stabilisation in Hungary’s forint and a weaker Polish zloty. EUR/CZK continues to follow the rate differential closely. Although CZK rates did not have much chance of repricing up after the hawkish Czech National Bank last week, the interest rate differential is rising thanks to the rally in core markets and this should lead EUR/CZK lower this week. We see exactly the opposite story in Poland, where PLN rates reacted the most to Friday’s US jobs data, which will be a problem for EUR/PLN to resist a return to 4.30. EUR/HUF is near this year’s highs and Thursday’s inflation numbers will be crucial, which may in fact decide further rate cuts in Hungary and the direction of HUF.

Frantisek Taborsky