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CZK: Topside Koruna Momentum Fades as Data Turns Dovish

CZK
EM BulletCzech RepublicCentral and Eastern EuropeBulletGlobalEmerging Market NewsRegionCzechia

The rally in CZK has slowed down in September, with EUR/CZK so far unable to make a convincing break of the 25.00 handle. Macroeconomic data argues for a continuation of 25bp rate cuts, albeit the CNB’s ‘cautious’ stance remains justified. Attention therefore shifts to tomorrow’s CPI data, where the headline figure is seen moderating from +2.2% Y/Y in July to +2.0% in August.

  • CZK outperformed HUF and PLN at the beginning of August, as a rally in JPY and unwind of popular carry trades weighed more heavily on the latter two currencies. CZK was resilient in that particular phase of risk-off, as growing expectations of the start of a Fed easing cycle prompted a sharp narrowing of the US/Czech rate spread, underpinning CZK outperformance.
  • CNB hawkishness will have also played a part in robust CZK performance. The central bank reduced the pace of easing to 25bps at the Aug 1 meeting, while also presenting a significant upward revision to the rate path.
  • Since then, GDP growth has come in above expectations in Q2, bolstering the case for the CNB to maintain its self-proclaimed “hawkish” tone at the next meeting on Sept 25. But at the same time, data has also shown that average monthly wages were below-expectations in Q2, alleviating concerns of officials and potentially cementing bets of further 25bp easing moves.
  • The more dovish data has been reflected by a dip in CZK 12x15 FRAs this month. Indeed, we think that although the CNB has said it will proceed with caution, recent data should facilitate 25bp cuts at the remaining 2024 meetings, with risks skewed towards a pause at Dec meeting.
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The rally in CZK has slowed down in September, with EUR/CZK so far unable to make a convincing break of the 25.00 handle. Macroeconomic data argues for a continuation of 25bp rate cuts, albeit the CNB’s ‘cautious’ stance remains justified. Attention therefore shifts to tomorrow’s CPI data, where the headline figure is seen moderating from +2.2% Y/Y in July to +2.0% in August.

  • CZK outperformed HUF and PLN at the beginning of August, as a rally in JPY and unwind of popular carry trades weighed more heavily on the latter two currencies. CZK was resilient in that particular phase of risk-off, as growing expectations of the start of a Fed easing cycle prompted a sharp narrowing of the US/Czech rate spread, underpinning CZK outperformance.
  • CNB hawkishness will have also played a part in robust CZK performance. The central bank reduced the pace of easing to 25bps at the Aug 1 meeting, while also presenting a significant upward revision to the rate path.
  • Since then, GDP growth has come in above expectations in Q2, bolstering the case for the CNB to maintain its self-proclaimed “hawkish” tone at the next meeting on Sept 25. But at the same time, data has also shown that average monthly wages were below-expectations in Q2, alleviating concerns of officials and potentially cementing bets of further 25bp easing moves.
  • The more dovish data has been reflected by a dip in CZK 12x15 FRAs this month. Indeed, we think that although the CNB has said it will proceed with caution, recent data should facilitate 25bp cuts at the remaining 2024 meetings, with risks skewed towards a pause at Dec meeting.