Koruna Falters On Monetary Policy Musings

EUR/CZK extends gains today as monetary policy considerations come to the fore. The pair deals +0.067 at 24.885 at typing. CZGB curve has twist flattened a tad and Czech FRAs remain stable. The PX Index is little changed and CEZ shares are 0.2% better off. From a technical standpoint, should EUR/CZK clear Jan 24 high of 24.919, bulls could set their sights on the psychologically significant 25.00 figure. On the downside, the focus falls on Jan 8 low of 24.458.

• Fed Chair Powell yesterday played down the odds of a March rate cut and said that the FOMC needs more certainty before loosening monetary conditions. By contrast, the tone of CNB communications has turned increasingly dovish ahead of next week's meeting. Jan Frait said he could support a rate cut larger than 50bp, while Tomas Holub said a half-percentage point move was on the table. On the other hand, Jan Prochazka advised caution and said that next steps will depend on the (non)materialisation of risks and uncertainties around the inflation outlook, yet his comments were insufficient to counter the impact of the dovish surprise provided by Frait's and Holub's remarks.
• Czechia's S&P Global Manufacturing PMI improved to 43.0 in January, coming slightly short of the consensus forecast of 43.2. Accompanying commentary flagged a "troublesome start to 2024," noting that "disinflationary pressures in the manufacturing sector will likely add to support for more interest rate cuts in 2024".
• Czechia will report its January budget balance at 13:00GMT/14:00CET.