CEE FX: Hawkish pricing versus dovish banks – ING

ING economist Frantisek Taborsky examines a busy Central and Eastern European (CEE) data and policy calendar, noting Hungary's inflation may rise, Poland and Turkey's central banks expected to maintain rates, and Romania's inflation falling due to base effects. Taborsky contends markets overestimate tightening in the Czech Republic and Poland, suggesting potential for narrower differentials and modest CEE currency weakness, particularly in EUR/CZK and EUR/PLN.

With a new month beginning, the CEE calendar includes July industrial production data from the Czech Republic and Hungary and Hungary's August inflation release expected to slightly increase from 1.2% to 1.4%. On Wednesday, the National Bank of Poland is anticipated to keep rates at 3.75%, remaining on hold for the year. Thursday sees the Central Bank of Turkey likely maintaining rates at 37%, while Brazil's August inflation expected to drop sharply from 8.2% to 6.5% due to base effects, despite increased monthly price growth.

In the Czech Republic, the CNB blackout period starts Thursday, with a more dovish tone expected versus aggressive hawkish pricing. Regional rates rose last week following global relief, lessening expectations of rate hikes in the Czech Republic and Poland, but markets still price around 80 basis points of tightening, viewed as excessive.

A reduction in these bets should narrow interest-rate differentials and moderately affect CEE currencies. Upside risks to EUR/CZK may push it above 24.250 unless the Czech National Bank (CNB) surprises with a hawkish stance this week. EUR/PLN may recover if the National Bank of Poland sustains its dovish bias despite rising inflation.