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Czech koruna weakens as market pricing shifts toward ECB-style tightening

BNY Mellon’s Geoff Yu said Czech National Bank expectations have risen with the ECB, but the koruna has slid on a nominal effective exchange rate basis.

Reported · Written up by our desk · EM Currencies

FXStreet reports that Geoff Yu at BNY Mellon pointed to rising Czech National Bank policy expectations alongside tightening expectations for the ECB, yet the Czech koruna has continued to slide on a nominal effective basis.

Yu argued that aligning Czech policy closely with the Eurozone could amplify growth headwinds for the Czech Republic, given how smaller European economies integrated into the Eurozone supply chain often need to move in line with ECB policy.

He added that the market pushed up the CNB’s expected policy path, but that the koruna has drifted back toward earlier lows on a nominal effective exchange rate basis, despite the idea that weaker inflation could have shifted policy expectations.

Yu said that if current ECB policy is hurting growth, Czech industrial links to the Eurozone make it unlikely the Czech economy can perform well, and he suggested the CNB may need a clean break from the ECB, while noting that credible domestic stimulus could be rewarded in a growth-focused market.

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