CEE FX: How are risk-off sentiment and energy pressures constraining regional currencies? – ING

Central and Eastern European currencies remain under pressure from deteriorating global risk sentiment and higher energy prices, although regional FX is holding up, according to ING strategist Frantisek Taborsky. His overall outlook for CEE FX remains bearish. He points to koruna strength driven by expectations of a hawkish Czech National Bank and EUR/RON stabilising around 5.340, while exposure to energy prices and the absence of hawkish policy leave EUR/HUF and EUR/PLN vulnerable to upside moves.

Can the koruna stay resilient as the zloty and forint remain vulnerable?

"Deepening "risk-off" sentiment and the continued rise in energy prices are weighing on emerging market currencies, including those in CEE. Nevertheless, the region is demonstrating admirable resilience; despite some fluctuations in rates, the FX market remains relatively robust. Even so, we maintain a bearish outlook on CEE currencies in general."

"Although the market interpreted the interview as dovish, we view it as preparation for a rate hike. Furthermore, as Frait is one of the more dovish members of the Bank Board, subsequent comments from other officials are likely to be more hawkish. This supports further strengthening of the koruna, despite a significantly negative global environment; consequently, we could see a test of the 24.200–24.250 range."

"EUR/RON has normalised, returning to the 5.340 level, following the parliament’s vote of confidence in the new technocratic government. As we noted previously, we do not expect the new government to trigger an FX rally, but rather to foster stabilisation around current levels. This remains our baseline view, though the risk remains tilted to the upside for EUR/RON should political uncertainty return."

"On the bearish side, the Polish zloty and the Hungarian forint remain particularly vulnerable. They may face further downside, given the absence of a hawkish stance from their respective central banks, combined with high exposure to energy imports and rising energy prices."

"The upside for EUR/HUF should be capped in the 368–370 range, supported by a local, idiosyncratic narrative; we would expect to see new sellers of EUR/HUF emerge there. Conversely, EUR/PLN lacks this benefit and remains exposed to the upside."

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