FX Daily: More of the same to start the year | articles
In the region today we will see the final 3Q GDP numbers in the Czech Republic which should be confirmed at 1.3% year-on-year. The central bank will also release minutes from the December meeting when it paused the cutting cycle. Two board members voted for a rate cut (we expect Frait and Prochazka) and today’s minutes will show the vote split and discussion. Given the outcome of the meeting, we should see some hawkish arguments but given the hawkish market pricing, we see more of a possible surprise on the dovish side. Also in the Czech Republic, the state budget results for last year will be released. We expect a better result than MinFin had projected (deficit below CZK282bn), which should result in 2.4% of GDP, while we expect 1.9% of GDP this year. Next week, most likely on Monday, MinFin will also publish the financing strategy for this year and the first calendar of CZGBs issuance for January.
In Poland, December inflation will be published today, as always the first in the CEE region. We, in line with the market, expect an increase from 4.7% to 4.9% YoY. Although the range of estimates is wide, from 4.7-5.0%, the market is more inclined towards the upside risk.
In the FX market, we see PLN and CZK strongly following rates. While in Poland we think current market pricing is fair, in the Czech Republic we believe the market is too hawkish relative to the Czech National Bank’s stance. While the CNB’s next steps depend heavily on the January inflation number, we believe the probability of rate cuts in February is higher than the market implies. Given the low EUR/CZK levels, we are thus negative on Czech koruna and neutral on Poland’s zloty.
EUR/HUF gained 0.5% yesterday, returning to higher levels, and we see the gap between rates and FX, which was created at the end of the year when the central bank increased FX implieds to stabilise the market, closing. However, we still see some room for HUF to weaken, and we remain negative on it.
Frantisek Taborsky
