CEE: Busy Week Ahead Drives FX Strength

CEE: Busy week should lead to slightly stronger FX

The region has a busy week ahead. PMI numbers across CEE countries will be released today. In Poland and the Czech Republic, we expect industrial sentiment to deteriorate again more than the market expects. Later today, we will see the Czech Republic's state budget result for June, which should finally show a reduction in the record deficit. The National Bank of Romania will meet on Wednesday and we expect interest rates to be stable in line with the market. Then on Thursday, data from industry, retail sales and the state budget in Hungary will be published. In the case of industry, we expect a higher decline than the market forecasts. Later, we will see a decision from the National Bank of Poland. Rates remain unchanged, but this time a new forecast will be published. Given the lower inflation last week, we can expect a dovish tone pointing to rate cuts after the summer months. June inflation in Hungary will be published on Friday. We expect a further decline from 21.5% to 19.9% year-on-year due to a favourable base effect and a fall in food, durables and energy prices. Also on Friday, Czech industrial data will be published and S&P will release a rating review in Hungary. Given the downgrade to BBB- this January, we do not expect any changes this time.

In the FX market, the region should benefit today with a delay from Friday's upward movement of EUR/USD as well as the positive sentiment in Europe from the end of last week. On the other hand, the bad news for the Hungarian forint and the Czech koruna is the renewed rise in gas prices, which is once again becoming a strong player in this part of the region. A dovish NBP in the second half of the week should not come as a surprise to the market and therefore we do not expect much pain for the Polish Zloty. So overall, we are slightly bullish on FX in the CEE region this week. If gas prices calm down again, EUR/CZK should return below 23.70 and EUR/HUF to 370 EUR/HUF. EUR/PLN should stay below 4.450.