Koruna Firms Less Than Its CE3 Peers Ahead Of CNB Rate Decision

The CNB rate decision takes centre stage locally, with the Fed's on-hold decision now in rear-view mirror. Uncertainty around today's Bank Board meeting is elevated, which is reflected in EUR/CZK overnight implied volatility reaching its highest levels since mid-September. That being said, the moves in implied volatility have been contained further out the maturity curve. Analysts polled by Bloomberg are almost evenly split in their predictions, while the market is pricing a 25bp rate cut, which would be the CNB's first in the post-pandemic era.

• Our comprehensive preview discusses the context of today's rate decision in more detail, pointing to a tension between consistently dovish economic developments and a cautious Bank Board wary of taking action prematurely. The decision will be informed by an updated macroeconomic forecast, with the key numbers due for release today. From the FX perspective, it is worth mentioning that the koruna depreciated faster than implied by the previous forecast, loosening financial conditions and effectively doing part of the CNB's job.
• When this is being typed, EUR/CZK trades -0.021 at 24.644. Local markets have taken their cue from post-Fed impetus reverberating globally, with CZGB curve bull flattening as a result. The koruna's appreciation has been less pronounced than in the case of its regional peers PLN and HUF. Technically, bears look for a dip in EUR/CZK past the 50-EMA (24.455) and towards the key 24.3 support area. Bulls see Oct 26, 2023/Jul 7, 2022 highs of 24.747/24.797.