Commerzbank’s Tatha Ghose reviews recent CEE FX performance, noting that the euro’s strength above 1.17 has supported high-beta PLN and HUF, while the Czech koruna has also gained despite its lower beta profile. He highlights the divergence in regional monetary policy, with the CNB expected to tighten further while the MNB remains in an easing cycle and the NBP moves closer to potential rate cuts. As a result, he sees CZK as the strongest near-term performer, supported by a more favourable domestic policy backdrop and its defensive characteristics.

Beta support but CNB stands out

“The Middle East conflict remains unresolved and oil has moved back above USD 90/bbl, but latest bond market developments have, nevertheless, weakened the dollar. The euro’s resulting rally beyond 1.17 predictably supported high-beta CEE currencies last week.”

“Both the Polish zloty and Hungarian forint appear to have formed interim bottoms and recovered modestly last week, with EUR-HUF retreating from 365.0 towards 362.0. In other words, beta is still alive and well.”

“But strikingly, the lower-beta Czech koruna also strengthened once the euro began to appreciate (see chart below). This suggests an additional country-specific driver.”

“The Czech National Bank (CNB) is the only regional central bank likely to raise rates in coming months – a move already priced in by FRAs – whereas its Polish and Hungarian counterparts remain distinctly less hawkish. NBP Governor Adam Glapiński recently indicated that rate cuts could be near, even if he may soon backtrack on that guidance.”

“MNB, meanwhile, remains in an easing cycle and is expected to cut by 25bp tomorrow and probably again in September. Pro-inflationary developments may merely pause easing by MNB; but an outright hawkish pivot looks remote.”

“Overall, the koruna offers the strongest near-term prospects: the global risk backdrop remains vulnerable to reversal, which will favour the low-beta candidate, while domestic monetary policy is comparatively the most supportive.”