CEE FX: Risks tilted to the downside – ING

Central and Eastern European (CEE) rates are again tracking higher energy prices, says ING strategist Frantisek Taborsky. The relationship follows a period of weaker correlation. Although regional Gross Domestic Product (GDP) has been stronger than in the Eurozone, he regards inflation as the main concern. Ahead of data releases from Poland, the Czech Republic and Hungary, he sees more scope for near-term losses than gains in CEE currencies.

CEE rates reconnect with higher energy prices

"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.)