CZK: Koruna Under Pressure After Frait's Comments

The koruna sold off after CNB Deputy Governor Jan Frait said that he will probably vote in favour of reducing rates by 25bp or 50bp next week, with his refusal to rule out another outsize cut providing a dovish surprise. As a reminder, the Bank Board said last month that it is "likely to slow the pace of moderation of monetary policy restriction at the meetings ahead or keep rates unchanged for some time."

• Frait admitted that "the main focus of the debate on August 1 will be a 25bp cut" but benign inflation data for June reopens the question of whether there is room for a larger move. The official didn't think that koruna weakness could be a strong argument against cutting rates, as favourable fundamentals should promote its appreciation over time.
• EUR/CZK last trades +0.087 at 25.345. A bullish flag formation appears to be forming, with the rate pushing higher after a short period of consolidation. The 50-DMA has now returned above the 200-DMA, with bulls looking for a move through Jul 15 high of 25.430. On the flip side, bears keep an eye on the 100-DMA, which intersects at 25.070.
• CZGB yields dropped across the curve, with flattening impetus evident as the short end leads gains. The PX Index continues to creep higher.