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Morning Summary: Traders Continue To Chase CZK

CZECHIA
  • Covid cases continue to gradually decrease with the 7D SMA of daily new cases dropping below 1,500 (and down from 12,300 from its early March highs). As a result, Czech government continues to ease pandemic restrictions, reopening shops and services after 4 months of lockdown. Czech government may open hotels and guests houses and allow indoor cultural events with as many as 500 people in the audience starting May 24.
  • Yesterday, economic data showed that April inflation rose more than expected by 3.1% (vs. 2.7% exp.), up from 2.3% the previous month. We have seen that sell-side institutions have significantly underestimated the rise in consumer prices in the CEE region, which could increase policymakers' concerns over rising inflationary pressures. CNB commented that the CPI is in line with main 'story' of forecast.
  • As a reminder, based on the latest sell-side estimates, Czech inflation is expected to average 2.3% in Q2 and Q3 2021 and 2.5% in Q4.
  • First CNB hike is still priced in for as early as August, which is one of the major reasons why CZK has remained strong against major crosses in recent weeks.
  • Next economic data to watch are current account on May 14 and PPI industrial on May 17.
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