CZK: Koruna Lags EMEA Peers Despite Favourable Risk Backdrop

The Czech koruna has extended this week’s divergence from its CE3 peers, even as a weaker dollar adds to the more-supportive global backdrop for EM FX.

• Koruna weakness is apparent in moves in PLNCZK and CZKHUF off their recent cycle lows/highs. The former broke below the 200-DMA on Friday, but has since recorded a 1.4% recovery this week, while CZKHUF sits 1.5% lower compared to last week’s high.
• Inflation indicators have turned slightly dovish this month. Czechia's industrial PPI, one of the most commonly watched bellwethers of overall inflation, rose 1.0% Y/Y versus +2.0% expected. Service producer prices were up 3.2% Y/Y but fell 0.2% M/M. Note that the CNB has recently been voicing its concern about lingering price pressures in the services sector.
• Meanwhile, the NBH has shifted in the hawkish direction with a smaller rate cut compared to last month (with the scope for additional rate cuts appearing limited), while NBP Governor Adam Glapiński’s doubled down on his hawkish rhetoric earlier this month, stating that the probability of rate cuts this year is zero.