This week, the focus in the CEE region will be on inflation. August figures will be released tomorrow in the Czech Republic and Hungary, and on Wednesday in Romania. On Friday, we will see the final inflation figures in Poland, notes Frantisek Taborsky, FX strategist at ING.
Inflation data will move CEE currencies
“In the Czech Republic, we expect a slight decline from 2.2% to 2.0% year-on-year, reducing the deviation from the Czech National Bank’s forecast of 1.8% by one-tenth. We expect a slight acceleration in core inflation from 2.2% to 2.4%. In Hungary, we expect a considerable decline in inflation from 4.1% to 3.6% year-on-year. Meanwhile, core inflation should rise slightly from 4.7% to 4.8%. Here too, however, the deviation from the Hungarian National Bank’s forecast should narrow.
In Romania, we expect inflation to fall from 5.4% to 5.0% yoy. And finally, we should see confirmation of the preliminary estimate of 4.3% yoy in Poland. Markets are still quite driven by the global story, but we think inflation numbers in the region could set the direction for FX. For now, we remain quite bearish on the region. EUR/HUF quickly reached our highest levels on Friday and while we think conditions do not point to further HUF weakness, we do not think the market rebalancing is over yet.
If inflation comes closer to the NBH forecast, it would signal further HUF weakness. EUR/CZK is resisting bullish pressure for now, indicated by the rapid narrowing in the rate differential. However, we still see a tactical move higher towards 25.20 before reverting to our previous view of heading below 25.00. We still see EUR/PLN trading in the 4.270-280 range.
Source: Fx Street
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