CEE Outlook: Potential Positive Shift in Czech Republic's Rating Amid Improved Fiscal Outlook
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CEE: Possible improvement in the rating outlook for the Czech Republic
Today, the calendar in the region is again basically empty. This morning we will see consumer confidence in the Czech Republic, which rebounded in October, but so far, we don't see an improving trend. Moody's will publish a rating review of the Czech Republic after the close of trading. The agency has held a negative outlook for the Aa3 rating since last August. We see some chance here for an improvement in the outlook to move towards greater stability. The main reason for the downgrade was the country's dependence on energy from Russia and the deteriorating fiscal outlook. Both issues have been resolved this year, and we thus think that an improvement in the outlook is a matter of time.
In the FX market, yesterday's news of possible EU money for Hungary was greeted by a strengthening HUF. While yesterday's news involves a different part of the EU money than was mostly mentioned in the context of the conflict over the rule of law, it is good news for Hungary. As we mentioned after the National Bank of Hungary (NBH) meeting this week, for new FX gains, we need to see some new triggers, such as the EU money progress. We therefore think yesterday may unlock the next wave of HUF appreciation. Market rates have stabilised, and we might even see some upside after a long string of declines. EUR/HUF has thus probably consolidated slightly above 380 and fell below that level yesterday. Looking ahead, 378 EUR/HUF should not be too ambitious a target if EUR/USD stays at high levels today.
