Koruna Depreciation Continues But SocGen See Imminent Recovery

EUR/CZK keeps trending higher and last changes hands +0.097 at CZK23.791. Familiar technical contours remain in play, with bulls looking for a move through Mar 28 high of CZK23.820.

• We cannot know what exact level of EUR/CZK would put the CNB on alert but the spring forecast assumes that it would trade at CZK23.50 in 2Q2023 and gradually climb to CZK23.67 and CZK23.88 over the next two quarters. A strong exchange rate is one of the main pillars of the CNB's monetary policy.
• Societe Generale recommended buying the koruna on the back of their view that market bets on CNB rate cuts are overdone. Their CEEMEA strategist wrote that below-forecast inflation data may have boosted dovish monetary policy wagers but "the CNB's rhetoric, and perhaps a technical pullback after the recent weakening, will push EUR/CZK lower."
• Still, the local FRA curve has shifted higher this week. CNB officials continued to beat the hawkish drum at the start to the week, but the koruna has been unfazed. Anecdotally, some see the government's fiscal consolidation package as a factor that could mitigate the CNB's hawkish leanings.