ING strategist Frantisek Taborsky notes that a stronger dollar and lower oil prices led markets to overestimate most interest rate hikes in Poland and the Czech Republic, increasing pressure on regional currencies. Taking into account the expected decline in inflation in Poland to 2.9% and annual inflation in Turkey to 31.9%, he predicts maintaining rates in Poland and limiting EUR/PLN to a level close to 4.300 despite potential tests at 4.290.
Regional currencies are facing difficulties again
“Last week in the CEE region was marked by oil relief and a stronger US dollar. The result is a repricing of most interest rate increases in Poland and the Czech Republic, but also some pressure on the weaker currency.”
“The focus this week will be on Tuesday’s Polish inflation data for June. We saw a significant downside surprise in May, mainly due to food prices, and our economists now expect a decline from 3.1% to 2.9% largely as a result of lower fuel prices.”
“This should confirm that the National Bank of Poland rates will remain unchanged this year.”
“Turkey will release inflation for June on Friday. We expect monthly inflation to decline further to 0.8%, returning to a downward trend year-on-year to 31.9% from 32.6% a month ago.”
“Weekend headlines from the Middle East suggest a mixed opening, which combined with a stronger US dollar suggests further pressure on CEE currencies. EUR/PLN may retest the 4.290 level for further gains, but we believe the 4.300 level should be sufficient resistance for now.”
(This article was created with the lend a hand of an artificial intelligence tool and has been reviewed by an editor.)
