CEE FX: Balance of Risks Skewed to the Downside – ING

Near-term downside risks outweigh the upside potential for Central and Eastern European (CEE) currencies, according to ING strategist Frantisek Taborsky, as markets await data from Poland, the Czech Republic and Hungary. He notes that CEE rates are once again responding to higher energy prices following a spell of weaker correlation. In his view, inflation remains the main concern, even though regional Gross Domestic Product (GDP) has been stronger than in the Eurozone.

Will rising energy prices push CEE rates higher?

"In the CEE region, FX markets saw some stabilisation yesterday following Friday’s sell-off, though negative global conditions remain largely unchanged."

"The region opened this week with rates catching up to rising energy prices. The correlation between rates and energy prices has weakened in recent weeks; based on patterns from previous months, CEE rates should be higher."

"Still, the CEE region cannot escape the bond market turmoil seen in the eurozone, particularly in France, or growing concerns regarding a regional recession. Nevertheless, GDP growth in the region has been somewhat stronger than in the eurozone, and we continue to view inflation as a more pressing issue locally."

"Consequently, we believe rates are more likely to follow energy prices upward than to decline due to recession fears. The regional calendar is essentially empty until Friday, when inflation data for Poland and GDP figures for the Czech Republic and Hungary are due to be released."

"In the coming days, the direction will naturally be influenced by the Fed and ECB meetings, as well as any new developments regarding the US-Iran conflict. That said, we believe CEE currencies face greater downside risk than upside potential."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)