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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
CZECHIA
- The sharp tightening in financial conditions in the past year has been pricing in a significant deceleration in the economic activity in the EM world in the coming 6 to 12 months, particularly in the CEE region which has been severely impacted by the Ukraine war shock.
- The top chart for instance shows that Czech 2Y10Y yield curve has strongly led the industrial production (‘proxy’ for economic growth) by 6 months in the past 15 years.
- In addition, the real interest rate differential between US and CZK, which has been a strong driver of USDCZK exchange rate over time, has been surging in the past year as inflation continues to accelerate sharply in the CEE region (bottom chart).
- As a reminder, Czech inflation surprised positively in April, accelerating to 14.2% YoY (vs. 13.3% exp.), up from 12.7% the previous month.
- Hence, divergence in growth expectations combined with the rise in real interest rate differential have been pricing in cheaper CZK (relative to the USD).
- We saw that CZK was sold aggressively this morning after President Zeman names ‘dovish policymaker’ Ales Michl as new CNB governor.
- USDCZK broke above the 24.0290 level this morning, which corresponds to the 61.8% Fibo retracement of the 20.72 – 26.07 range. Next level to watch on the topside stands at 24.81 (76.4% Fibo).
Source: Bloomberg/MNI
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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