ING’s Frantisek Taborsky notes the Czech National Bank is likely to deliver a 25bp hike to 4.00%, but stresses that CEE markets are primarily driven by energy prices. While a softer EUR/USD and firmer equities may offer short-term support to CEE currencies, surging TTF gas prices above €100 underpin ING’s bearish medium-term outlook for regional FX.

Energy prices weigh on CEE currencies

“The CNB’s “blackout period” begins today in the Czech Republic, and the market is returning following yesterday’s public holiday. On Tuesday, another board member, Jakub Seidler, confirmed his intention to vote for a rate hike at next week’s meeting. Given that he has consistently voted in line with the board majority, we believe a 25bp rate hike – bringing the rate to 4.00% – is a done deal.”

” In our CNB preview published yesterday, we noted that the market is primarily driven by energy prices, with the CNB having relatively little impact. As the Czech market resumes trading after yesterday’s holiday, we expect a catch-up with PLN rates, likely resulting in an upward move of roughly 8bp.”

“Yesterday’s Fed meeting has only limited implications for the CEE market. Some relief in the EUR/USD pair, combined with a return of optimism to equity markets, offers a chance for CEE currencies to stabilise today.”

“In the medium term, however, TTF gas prices surpassed €100 yesterday, a factor fuelling further sell-offs across the CEE region – and the rationale behind our bearish outlook on CEE currencies remains intact.”