The FX market has fully switched into risk-off mode and the whole emerging market space took a hit yesterday. The CEE region led the losses days before, so it was left behind yesterday, ING’s FX strategist Frantisek Taborsky notes.
“However, the situation in the Middle East does not seem close to calming down and while we are getting more dovish news from the developed market world, CEE currencies are likely to remain under pressure for some time but fundamentals for a fading move later remain strong in our view. EUR/USD rapidly sliding lower will continue to keep CEE currencies under pressure.”
“Although we can assume that local rates will not hold current levels for long if core rates continue yesterday's trend, in Poland and the Czech Republic more than enough rate cuts have already been priced in and downward space is limited. Additionally, we might receive some hawkish news from Poland’s central bank this week and from the Czech Republic with the release of September’s inflation data next week.”
“So, across CEE, we see a growing FX and rates market divergence that will have to be closed at some point in the future, opening the door for fading the current FX weakness. The Polish zloty seems most appealing with the central bank meeting this week, while the Czech koruna may be attractive later. The Hungarian forint, on the other hand, will have the hardest path to finding stable ground within the CEE peers, in our view.”
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