The rather quiet atmosphere of this week should continue today in the CEE region. The calendar has nothing to offer but we have several speakers scheduled in the region today. The Czech National Bank (CNB) blackout period will start this afternoon ahead of next week’s Wednesday’s meeting. Potentially we may hear something from board members, however it seems that a 25bp rate cut to 4.25% is a safe call. The question remains what to expect next?
Our economists are on the hawkish side with a pause in the cutting cycle in December and February with 3.75% at the end of the first quarter while the market is pricing in 3.25%. Still, in the short term, we find market pricing justifiable given the weaker economic numbers. On the other hand, the terminal rate at 2.75% priced in goes against the CNB’s main tone at the moment. We think this could be a source of support for the CZK next week. EUR/CZK bounced down from 25,150 yesterday, although this was our view, our reasons have not yet materialized and the rate differential remains rather lower. So the real trigger is more likely to be the CNB meeting next week.
In Hungary, the prime minister is scheduled to address the European Parliament today, which may trigger some headlines. EUR/HUF is almost fully back to pre-fiscal headlines levels from last week and although we still see some room to the downside, the main potential is gone. On the other hand, next week’s National Bank of Hungary meeting is scheduled which will significantly hinge on the Fed’s decision today in our view. However, our economists see a 25bp rate cut as the baseline, which, if the Fed is dovish, could promise more rate cuts in the future, leaving the HUF exposed.
Frantisek Taborsky
