Koruna Unwinds Post-CPI Gains, Official CNB Commentary Eyed Later Today

EUR/CZK has clawed back the bulk of its earlier losses registered on the back of a hotter-than-forecast CPI reading for May. The pair dipped to CZK23.641 on the release, before recovering to +0.007 at CZK23.706 at typing. Continued gains past May 19/Mar 28 highs of CZK23.797/23.820 would bolster the hawkish case. Bears look for a move through Jun 6 low of CZK23.510.

• Czech inflation slowed to +11.1% Y/Y in May from +12.7% prior, topping the +10.8% median estimate in a Bloomberg survey. The partial reversal of the initial reaction may have come on the back of the realisation that the outturn was still lower than the CNB's +11.6% Y/Y forecast. The market may have been primed for a softer reading by last week's comments from CNB Deputy Governor Zamraziilova, who said that May inflation could print between +10%-11% Y/Y. Worth noting that none of the respondents in a poll of analysts conducted by the local newswire CTK expected inflation to come in above +11% Y/Y.
• Czech Banking Association Chief Economist Jakub Seidler assessed that today's inflation print is mixed from the central bank's perspective and could justify both dovish and hawkish arguments. He added that the CBA do not expect further rate hikes, but see the first rate cut closer to the end of 2023 or beginning of 2024.
• The initial reaction in the local interest-rate markets was the addition of hawkish CNB bets. Czechia's FRA curve adjusted higher, before pulling back, albeit the short end remains above neutral levels. CZGBs sold off initially before trimming losses.