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Central Banks Stand Ready to Intervene In FX Market If Needed

CEE
  • The deterioration in Russia/Ukraine conflict has left CEE currencies vulnerable in the past two weeks, erasing all of their early January gains.
  • Trading sessions in the last two days have been extremely volatile, with Euro-CEE crosses rising by over 20 figures before edging lower this afternoon.
  • As a result, CEE central banks raised their voices, announcing markets that they stand ready to intervene in the FX markets in order to ease the selling pressure.
  • Weakness in CEE FX puts policymakers in a 'difficult' position as it keeps supporting inflation expectations, which is likely to maintain the inflation rate elevated longer than previously anticipated.
  • CEE policymakers could also surprise the market by maintaining the pace of the tightening cycle for longer than expected, hence increasing the terminal rate.

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