Koruna Weakens After Release Of Softer-Than-Expected CPI Data

Czech financial markets have moved on the release of below-forecast inflation data for May this morning, with the koruna taking a dip alongside CZGB yields. EUR/CZK last trades +0.080 at 24.715, advancing towards its 200-DMA again (the moving average attracted price action in the second half of May). CZGBs are firmer across the curve, albeit regional peers have also strengthened, and it should be noted that CE3 FX are broadly weaker as well. Czech FRAs have edged lower.

• Headline CPI inflation moderated to +2.6% Y/Y in May after approaching the upper end of the +/- 1pp tolerance band around the +2.0% Y/Y CNB target in April. Consensus was looking for a smaller downtick, i.e. to +2.8%. The central bank pencilled in +2.5%, but the forecast was somewhat outdated, having been prepared before April's larger-than-expected flare-up to +2.9%.
• The latest inflation reading plays into the ongoing debate on CNB easing trajectory. The central bank will hold its next monetary policy meeting on June 27, with Bank Board members deliberating whether to reduce the pace of cuts to 25bp/meeting from the earlier 50bp/meeting.
• To give a fuller picture, Q1 data released a week ago showed that wages grew faster than expected, potentially reinforcing concerns about price pressures in the core segments of the economy. On that front, market participants will cosely scrutinise the latest core inflation print, due for release alongside CNB commentary today.
• From a technical perspective, should EUR/CZK move through the 200-DMA (24.811), bulls could take aim at the 50-DMA (24.976) and the 100-DMA (25.094). Bears keep an eye on Jan 8 low of 24.458.