Koruna Rallies As Hawkish Hold From CNB Inspires Participants To Withdraw Rate-Cut Bets

The Czech Koruna appreciated alongside a repricing of CNB rate expectations on the back of strongly worded, hawkish rhetoric accompanying a split decision to keep the policy rate unchanged. EUR/CZK last trades -0.093 at CZK23.502, erasing its weekly gain. Familiar technical levels remain in play.

• Three dissenters voted for a 25bp rate hike, which means that a swing of just one vote would have changed the overall outcome. During his press conference, Governor Ales Michl said that the Bank Board discussed proposals of an even bigger rate hike and warned that the current bets on the timing of the first rate cut are "premature." He added that loose fiscal policy is the main inflationary factor and in the absence of credible budget consolidation, the CNB could be forced to raise rates in June.
• Czech FRA curve shifted higher as Governor Michl made it clear that the CNB stands ready to adjust interest rates higher and to keep them higher for longer. The 3x6 contracts touched levels last seen in mid-November as participants assess the odds of a resumption of monetary tightening. CZGB curve has bear flattened, with the short end suffering heaviest losses amid hawkish CNB repricing.
• While the Koruna is the second-best EMEA performer after the ZAR, it comfortably outperforms its CE3 peers. PLN/CZK has pulled back under the neckline of a double bottom formation (CZK.5.1319) and now trades -321 pips at CZK5.1229, which raises the risk of invalidating that bullish technical pattern.