CEE FX: Rates relief and CNB meeting – ING

Central and Eastern European markets started the week on a positive note, with rates markets outpacing anticipated hikes, while the foreign exchange market remained relatively dormant. According to ING strategist Frantisek Taborsky, this scenario suggests around two Central Bank of the Czech Republic (CNB) rate increases over the next 18 months, slightly more than one in Poland, and approximately three rate cuts in Hungary.

However, Taborsky anticipates stable rates in the Czech Republic and Poland, with more cuts in Hungary.

The current market pricing suggests potential for a further rates rally if global conditions remain favorable. In the Czech Republic and Hungary, the upcoming inflation figures and this week's CNB meeting are expected to provide additional support. Market movements largely mirrored those of core markets, with minimal shifts in rate differentials.

Taborsky's previous perspectives remain unaltered: a stronger zloty and forint may benefit from the global relief, whereas the koruna is anticipated to underperform based on a cautious interpretation of this week's CNB meeting. Meanwhile, the British pound (GBP) and US dollar (USD) strengthened, reaching a three-month high near 1.3570 before slightly retracting on Monday.

This positive trend was influenced by expectations of a reduced likelihood of a Federal Reserve rate increase in September, which has boosted the GBP/USD pair.

In contrast, EUR/USD steadied its recent gains, maintaining a level above 1.1500 following the close of Wall Street trading on Monday. This upward movement is attributed to the ongoing selling pressure on the US Dollar, as investors parse the possibility of Fed rate hikes. The economic calendar is expected to be busy, with Germany's ZEW survey and various US economic indicators scheduled for release on Tuesday.

Gold prices have remained near a two-month high, buoyed by a weakening US Dollar and heightened concerns over inflation and geopolitical tensions. However, the escalating oil prices pose a risk to the inflation outlook and may act as a ceiling for the commodity.