Koruna Claws Back Post-CPI Losses

EUR/CZK has been gradually unwinding an upswing triggered by the release of below-forecast CPI data and now sits at 25.394, close to neutral levels. The intraday peak reached just after the publication of the CPI report was 25.519, with the rate making a foray above May 11 high of 25.486 in the process. Bears look for a deeper pullback towards Jan 2 high of 24.867. On the flip side, bullish focus falls on Mar 2 high of 25.936.

• A couple of CNB officials rushed to mitigate the impact of dovish inflation data via their social media channels. Deputy Governor Zamrazilova said that "rates will remain elevated until it's clear that inflation will remain at 2%," while "exchange-rate developments will also play a role." Governor Michl wrote that Board members "will remain hawks" and rates will be lowered cautiously.
• The Czech Banking Association (CBA) lowered their 2024 GDP growth forecast for Czechia to +1.2% Y/Y from +1.8%, while raising the inflation forecast to +2.7% Y/Y from +2.5%.
• CZGB curve has bull steepened after the release of benign inflation data, with yields last seen 4.9bp-10.8bp lower. Czech FRAs dropped to fresh cyclical lows, with the market pricing a more aggressive rate-cutting cycle.