Dovish Tone in CEE Puts Pressure on FX: Czech Republic, Hungary, and Poland in Focus

CEE: Dovish tone to put pressure on FX

The Czech Republic's 1Q wage data will be published today, which is perhaps a more important number for the central bank these days than inflation itself. The Czech National Bank expects 9.1% YoY, monthly data and national accounts point to a higher number, but it should remain below 10%, the pain threshold mentioned by the board.

Tomorrow, we will see industrial data in the Czech Republic and retail data in Hungary. Later, the decision by the National Bank of Poland will be announced. In line with the market, we expect rates to remain unchanged. The main focus will be the governor's press conference, which we expect to be dovish in tone, supported by a fall in inflation.

Hungary's industrial production will be released on Wednesday, and we expect a 6.5% YoY decline, well below market expectations. Then on Thursday, we will see May inflation in Hungary, which is expected to fall further from 24.0% to 22.1% YoY, slightly below market expectations. Hungary's state budget result and Romania's second estimate of 1Q GDP will also be released.

 

 

In the FX market, we will be watching the echoes of Friday's US labour numbers, which bring positive sentiment, but also higher dollar rates. However, a stronger dollar will still keep pressure on CEE FX and we remain bearish.

Moreover, local numbers across the region should favour a dovish tone this week, pushing interest rate differentials lower. After rallying in recent days, we think the Polish zloty and Hungarian forint are most at risk. The market has built large long positions in both currencies and the dovish tone this week should lead to some market rebalancing. Thus, we should see a return closer to 4,520 EUR/PLN and 372 EUR/HUF.