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Hawkish repricing after Fed comments steadies CEE currencies
ING notes Poland’s August inflation jumped to 3.4% on fuel prices, while food costs fell, and forecasts multiple rate hikes priced into Czech and Polish curves could cap further currency weakness.
ING strategist Frantisek Taborsky says central and eastern Europe FX has shifted back into a hawkish pricing mode after recent Federal Reserve comments and renewed US-Iran conflict escalation. With CEE trading subdued and UK markets closed, Taborsky expects some catch-up move as markets reopen.
In Poland, inflation surprised to the upside in August, rising from 3.0% to 3.4%, mainly driven by higher fuel prices. The statistics office likely did not fully reflect the government’s VAT reduction late in the month, Taborsky adds, while food prices fell further, which he characterizes as a dovish signal for other components.
Taborsky also points to upcoming data that could influence rate expectations, including second-quarter wage data in the Czech Republic, where he expects slower growth from the first quarter’s unexpectedly strong 8.1%. He forecasts Turkey’s August inflation will show only a modest month on month decline from 1.8% to 1.6%.