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Koruna Posts Gains As Michl Sees Rate Path Higher Than Priced By Money Market


The Czech Koruna has turned bid as the CNB released its full statement and updated economic forecasts, while Governor Ales Michl started his press conference. Much of the communique echoed the language of the previous statement, albeit the Bank Board noted that it "discussed a scenario in which the CNB’s key interest rates remain at the current level for longer." In addition, the Governor noted that he sees a higher rate path than currently priced by the money market.

  • While the decision to keep the existing FX regime was broadly expected, some may have counted on its surprise removal, given that it is understood that the CNB has not conducted any FX interventions in the recent weeks. Testament to this suspicion is a sharp drop in EUR/CZK overnight implied volatility on the release of the CNB's decision. Speaking to journalists later on, Governor Michl said that Koruna strength is helping tighten monetary conditions, while inflation is a bigger problem than exports.
  • Spot EUR/CZK last trades -0.011 at CZK23.768 after bottoming out at CZK23.745, with broader EUR weakness likely facilitating losses for the pair. The familiar technical contours remain intact.

Fig. 1: EUR/CZK Overnight vs. 1-Week Implied Volatility

Source: MNI - Market News/Bloomberg

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