CEE FX: Energy shock lifts tightening bets – ING
ING strategist Frantisek Taborsky reports that volatility in core rates and high Oil and gas prices are driving elevated tightening expectations across CEE, with roughly 125bp priced for Poland and the Czech Republic.
ING strategist Frantisek Taborsky reveals elevated tightening expectations across Central and Eastern Europe (CEE) due to heightened volatility in core rates and surging oil and gas prices. Approximately 125 basis points are priced for Poland and the Czech Republic. Initially, improving rate differentials bolstered regional currencies, but with EUR/USD nearing multi-month lows and energy prices surging, ING maintains a bearish outlook on CEE currencies.
Market sentiment remains pressured as volatility in core rates and energy prices exacerbates fluctuations in CEE rates. At their peak, traders priced in an average of 15 basis points of additional tightening throughout the region. Despite a slight correction, rates remain elevated, leaving roughly 125 basis points of tightening expected for both Poland and the Czech Republic.
Recent peaks in 2022 saw 210 basis points in Poland and 165 in the Czech Republic; if energy prices persist in rising, further repricing may occur despite central bank remarks. The EUR/USD pair tested fresh lows on Friday as regional currencies found some relief from improving rate differentials. However, US bond yields and geopolitical risks continue to exert upward pressure on the US Dollar, overshadowing expectations of a Bank of Japan rate hike and weighing on the AUD/USD pair.
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