Czech Koruna Set To Outperform CEE Policy Divergence

Key Moments

Differing FX Reactions to Euro Strength

Commerzbank analyst Tatha Ghose reviews recent moves across Central and Eastern European foreign exchange markets, focusing on how the euro’s advance above 1.17 has affected regional currencies. He observes that the euro’s climb has given a boost to higher-beta currencies such as the Polish zloty (PLN) and Hungarian forint (HUF), which tend to respond more strongly to shifts in global risk sentiment. At the same time, the Czech koruna (CZK) has also appreciated, even though it is typically regarded as a lower-beta currency within the region.

Ghose frames these developments against a backdrop in which the Middle East conflict remains unresolved and oil prices have moved back above USD 90/bbl. Despite these ongoing sources of geopolitical and commodity-related risk, he notes that recent bond market dynamics have weighed on the U.S. dollar, enabling the euro to rally and, in turn, support CEE currencies.

Performance of PLN, HUF, and CZK

According to Ghose, the combination of a softer dollar and a stronger euro has allowed both the Polish zloty and Hungarian forint to stabilize and recover somewhat. He points out that these two currencies appear to have found interim lows, with EUR-HUF retreating from 365.0 toward 362.0 over the past week. In his words, this price action underlines that “beta is still alive and well” in the region.

What stands out for Ghose, however, is the behavior of the Czech koruna. He notes that, “strikingly,” CZK also strengthened once the euro began to appreciate, despite its reputation as a lower-beta currency. This, he argues, implies that a country-specific factor is at work, beyond the general support provided by the euro’s move higher.

Monetary Policy: CNB Versus NBP and MNB

Ghose identifies monetary policy divergence as the key additional driver behind the koruna’s recent gains. He highlights that the Czech National Bank (CNB) is, in his assessment, the only central bank in the region that is likely to raise interest rates in the coming months. He notes that such a move is already reflected in forward rate agreements (FRAs).

In contrast, he characterizes the stances of the National Bank of Poland (NBP) and the National Bank of Hungary (MNB) as much less hawkish. Ghose points to recent comments from NBP Governor Adam Glapiński, who “recently indicated that rate cuts could be near, even if he may soon backtrack on that guidance.” Meanwhile, he describes the MNB as remaining firmly in an easing phase.

He adds that the MNB is “expected to cut by 25bp tomorrow and probably again in September.” While he acknowledges that pro-inflation developments could temporarily interrupt this easing path, he sees the likelihood of a fully hawkish shift by the Hungarian central bank as “remote.”

Relative FX and Policy Backdrop

The contrasting policy trajectories across the three central banks feed directly into Ghose’s assessment of near-term FX prospects in the CEE region. In his view, the koruna stands out as offering the most compelling outlook over the short horizon. He argues that the global risk environment remains exposed to potential reversals, a setting that tends to favor lower-beta currencies such as CZK.

Additionally, Ghose stresses that domestic monetary policy conditions are “comparatively the most supportive” for the koruna. The prospect of CNB rate hikes, especially when set against the easing bias of the MNB and the increased proximity of potential cuts by the NBP, underpins his constructive stance on CZK.