Today’s calendar is basically empty and won’t get interesting until tomorrow. In Poland, industrial and labor market data will be published on Tuesday. Later we will see a decision from the National Bank of Hungary (NBH). We agree with the market and expect another 75 basis point rate cut, which was telegraphed last week by the lieutenant governor. Then on Wednesday we will look at Polish retail sales. On Thursday, the Turkish central bank will raise rates again, in our opinion by 250 basis points, to 37.5%. On Friday Moody’s will publish a review of the Czech Republic’s rating, where it has maintained a negative outlook for more than a year. We see here some possibility to improve the stable outlook.
In the foreign exchange market, the forint reacted negatively to the drop in rates on Friday for the first time since the last NBH meeting, closing the divergence between the exchange rate and rates. However, this week will be key for central bank meeting and communication and perhaps new headlines coming from the EU story. It is very likely that we will see greater volatility than in previous weeks, but given Friday’s depreciation, we are quite positive on HUF. This should see it return to 376 EUR/HUF by the end of this week.
In Poland, this week’s data should confirm economic recovery, which could give markets impetus to price in rate cuts in the near term. As we mentioned on Friday, we consider the appreciation of the last two days premature and EUR/PLN returned to 4.380, which we now consider a reasonable value. But in our view, the short end of the curve has a lot of potential to undo some rate cuts from current expectations. In our opinion, this should be the main driver of PLN this week, so 4,360 is a matter of time this week.
The Czech crown, on the other hand, follows the decline in market rates, which should remain unchanged this week. The drop in the interest rate differential in the last two days to basically the levels before the last CNB meeting opens the way towards 24,600 EUR/CZK. And we can expect more this week after central bankers return to the headlines and reopen the issue of rate cuts in December.
Frantisek Taborsky
