Czech Koruna Could Fall if Central Bank Signals Further Rate Cuts — Market Talk

The Czech koruna rises to a 22-month high against the euro after Eurosceptic billionaire Andrej Babis and his populist ANO party won the country's parliamentary elections but fell short of an overall majority. The result was roughly in line with pre-election polls, ING analyst Chris Turner says in a note. "Markets may see it as positive news that parties openly calling for withdrawal from the EU/NATO did not make it into parliament, or underperformed expectations, which takes this issue off the table." No party has enough votes to push through its agenda and fiscal concerns look overdone, he says. ING therefore remains positive on the koruna. The euro falls to a low of 24.195 korun. (renae.dyer@wsj.com)

The Czech koruna falls as Czechs head to the polls Friday and Saturday for the parliamentary elections. Opinion polls suggest the right-wing populist ANO party of billionaire Andrej Babis could win against the ruling center-right coalition government. The market has recently started to price in some risk premium, signaling fiscal expansion compared to the current fiscally conservative government, ING's Chris Turner says in a note. While there is unlikely to be any significant fiscal changes, this could be one of the reasons for the Czech National Bank to maintain tight monetary policy, he says. "Therefore, despite some potential volatility in the short term, we continue to expect the euro to head towards 24.00 koruna." The euro rises 0.1% to 24.265 koruna. (renae.dyer@wsj.com)

The Czech central bank has greater potential to support its currency than the Hungarian central bank in policy decisions later this week, ING analyst Frantisek Taborsky says in a note. The Czech and Hungarian central banks are both likely to leave interest rates unchanged and sound cautious about the prospect of future rate cuts, he says. Given the long position already in the forint, or bets on it rising, the Czech koruna has more scope to rise, he says. Hungary's rate decision is on Tuesday followed by the Czech decision on Wednesday. The euro falls 0.2% to 389.55 forint and is flat against the koruna at 24.267. (renae.dyer@wsj.com)

The Czech koruna still has room to rise after its recent appreciation as the Czech National Bank could signal that interest rates will remain elevated at Thursday's meeting, Frantisek Taborsky says in note. Data Tuesday showed Czech inflation eased slightly to 2.7% in July from 2.9% in June but this doesn't change the case for the central bank to remain cautious about cutting rates, he says. ING expects the CNB to leave its base rate at 3.5% at Thursday's meeting. It sees no further rate cuts for the remainder of the year. The euro rises 0.1% to 24.590 koruna. It reached a one-and-a-half-year low of 24.505 on July 25, LSEG data show.(renae.dyer@wsj.com)

The Czech koruna has limited room to rise as the market is already priced for the prospect of the Czech National Bank's interest-rate cutting cycle ending, ING's Frantisek Taborsky says in a note. ING remains positive on the koruna among central European currencies but says the market has essentially priced out rate cuts. That means the CNB has likely exhausted its cautious messaging on rate cuts, limiting the potential for koruna gains, Taborsky says. "We expect [the euro to grind lower against the koruna] but the pace will be very slow and may take more time to get to 24.500." The euro trades steady at 24.584 koruna.(renae.dyer@wsj.com)

The prospect that the Czech central bank's interest-rate cutting cycle has now ended should continue to support the Czech koruna relative to its peers, Commerzbank's Tatha Ghose says in a note. The central bank's deputy governor Eva Zamrazilova said in an interview with Bloomberg, published Tuesday, that rate cuts are "almost certainly" over given soaring property prices, robust consumer spending and an improving economic outlook. This explains why the koruna is the least affected Central European currency on concerns about the economic impact of a 15% tariff on European Union goods as part of the U.S.-EU trade deal, Ghose says. The euro falls 0.1% to 24.563 koruna, having hit a one-month high of 24.634 Tuesday, LSEG data show. (renae.dyer@wsj.com)