Koruna Edges Higher In Lead-Up To CNB Monetary Policy Decision

EUR/CZK has come under pressure as the koruna outperforms in EMEA FX space at typing, with participants monitoring a Senate debate on nominees for top court positions and preparing for the upcoming CNB rate decision. The pair last deals -0.044 at 23.905, with bears looking for a move through the 200-DMA (23.855), which would open up the 23.745 support area. Bulls set their sights on Jul 24 high of 24.187.

• Following the release of data which showed that Czechia's YtD budget deficit narrowed for the second consecutive month in July, Komercni banka wrote that "the biggest contributor to this was higher income from the collection of corporate income tax, which probably reflected the current high profitability of the corporate sector." However, they "still think that if the government fails to adopt extraordinary austerity measures during the remainder of this year, the annual budget deficit will eventually exceed the CZK295bn target." Ceska sporitelna are more optimistic and believe that "there is a decent chance of not exceeding (or only slightly exceeding)" the full-year target.
• The focus turns to CNB monetary policy decision, which will be announced tomorrow at 13:30BST/14:30CEST (click here to see our preview). While the policy rate will likely remain unchanged, market participants will scrutinise the Bank Board's rhetoric and updated staff forecasts. CSOB wrote this morning that expect the CNB to lower its 2023 GDP growth forecast to 0.0% from +0.5% Y/Y and shift the inflation path slightly lower, but this should not fundamentally change the outlook for monetary policy, given the strength of the labour market, ongoing economic recovery and a weaker koruna exchange rate.