CEE Foreign Exchange Set for Gains as Rate Curves Normalise, Says ING

Central and Eastern European rate curves have repriced sharply, leading to expectations of currency strengthening in selected regional units according to ING.

Central and Eastern European (CEE) rate curves have experienced sharp repricing, with markets now anticipating additional tightening in the Czech Republic and Poland alongside further monetary easing in Hungary. Frantisek Taborsky from ING points out that while market pricing is gradually aligning back into a plausible scenario range, there remains a notable divergence compared to initial forecasts. Selected regional currencies, specifically the Polish Zloty (PLN) and the Hungarian Forint (HUF), are projected to strengthen in the near term.

Divergence Between Rates and Foreign Exchange
Over the preceding two weeks, rates and foreign exchange dynamics have drifted apart significantly. The ongoing rally in rates and the reduction in rate-hike premiums have not provided direct support for currency performance. However, accounting for current valuation gaps and the recent lag of foreign exchange behind rates, analysts maintain that selected units still possess adequate room for appreciation.

Specific Currency Targets and Scenarios
The projected trajectory outlines distinct targets for major cross rates in the region. Analysts anticipate the EUR/PLN pair moving below 4.300 and the EUR/HUF pair dropping below 358. Conversely, the EUR/CZK exchange rate is projected to climb above 24.200 as regional adjustments take full effect.

Geopolitical and Commodity Risks
This expected normalisation path rests on specific assumptions regarding global stability. Analysts caution that the ongoing normalisation could face disruption if the conflict involving the US and Iran escalates further, which would likely drive crude oil prices upward and alter current market sentiment.

Broader Market Movements and Safe-Haven Demand
Meanwhile, major global pairs traded defensively during the European session. GBP/USD hovered near fresh July lows around the 1.3270 region as the US Dollar sat firmly at monthly highs. Market participants remained cautious ahead of the two-day US Federal Reserve monetary policy meeting, while an ongoing equity sell-off continued to boost demand for the safe-haven US currency.

Similarly, EUR/USD consolidated near its monthly trough around the mid-1.1300s during European morning hours, weighed down by persistent US Dollar demand as traders awaited the Federal Open Market Committee meeting outcome. In commodities, Gold (XAU/USD) maintained a softer tone near the psychological $4,000 threshold following its failure to sustain levels above $4,100, reinforcing a downward path of least resistance driven by the prevailing bullish US Dollar undertone.

What this means for you
Global Economic Impact: Shifts in major currency pairs, central bank interest rate decisions, and fluctuations in safe-haven assets like the US Dollar and gold can influence import costs, commodity prices, and broader market volatility for international investors.

Questions & Answers

1. Which CEE currencies are expected to strengthen?
The Polish Zloty (PLN) and the Hungarian Forint (HUF) are expected to strengthen.

2. What are the projected targets for EUR/PLN and EUR/HUF?
The targets are set below 4.300 for EUR/PLN and below 358 for EUR/HUF.

3. What external factor could disrupt this currency normalisation?
A re-escalation of the US-Iran conflict and rising oil prices could disrupt the normalisation.

4. Near which psychological level is Gold trading?
Gold is trading near the psychological $4,000 level.

https://trendkia.com/en/market/cee-foreign-exchange-set-for-gains-as-rate-curves-normalise-says-ing-11434
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