CE3 Currencies Advance Today But PLN Remains YtD Laggard

The so-called CE3 trio HUF, PLN and CZK are the best performers in the EMEA space today and outperform peers from Bloomberg's extended list of 23 EM currencies alongside the likes of CLP and KRW.

• HUF and PLN have been unfazed by the release of local GDP data this morning. Hungary fell into a technical recession, with its economy contracting by a less-than-expected 0.4% Q/Q. Poland's GDP shrank by a whopping 2.4% Q/Q, with some local economists (mBank) suggesting that the economy is effectively in a recessionary mode, even if two quarters of notable contraction separated by one quarter of growth does not meet the formal definition. Czech advance Q4 GDP data came in recessionary earlier this month.
• On a YtD basis, the PLN has lagged its CE3 peers by significant margins, with HUF and CZK sitting atop the EMEA pile since the final closing bell of 2022, while the Zloty beats only the beleaguered South African Rand.
• This could be explained by relative central bank expectations (we have touched on this topic before), with the NBP offering a relatively dovish messaging compared to other CE3 central banks. The Forint appreciated yesterday as NBH Gov Virag called for patience in cutting interest rates, while CNB members have advocated keeping rates higher for longer, while sticking with a backstop against excessive Koruna depreciation.
• ING this morning recommended shorting PLN/HUF on the view that the Forint will be buoyed by "a significant improvement in risks, lower gas prices and by far the highest carry in the CEE region." Meanwhile, PLN/CZK consolidates near new record lows printed in the recent days.