CZK: FRAs Indicate Less Aggressive Easing Path But EURCZK Steady

EURCZK has traded on steady footing during Thursday trade, despite both domestic and US inflation releases surprising against market expectations. Czech headline inflation picked up to 2.6% in September, coming in above both market consensus and the CNB’s summer forecast. The data led to only a moderate downtick in EURCZK, which has since returned to flat.

• The CZK 3x6 FRA contract initially spiked to around 3.80 points following the CPI release, up as much as ~17bps on the month, but has since settled closer to 3.76. More broadly, the trend for CZK FRAs this month has been similar to that of Hungary, with fading prospects of another large Fed cut and rising Middle East tensions closing the door to more aggressive EM CB easing cycles.
• Still, the data is not likely to alter the outlook for Czech policy in the near-term, with a 25bp rate cut still expected at the November meeting. Indeed, ING anticipate a modest cut in November, bringing the rate down to 4.0%, noting also that a pause in December is likely. As a reminder, the CNB cut rates by 25bps in September, with one dissenter looking for a larger 50bp cut.
• Divergent signals between this morning’s inflation data out of Hungary and Czechia – with headline for the former below-expectations – have prompted a 0.4% move higher for CZKHUF. But despite today’s gains, that cross still sits well within this week’s ranges, while the 50-day EMA continues to limit losses.