EMEA FX Talking: Monetary Divergence Begins

EUR/PLN: Zloty refrain from profit even though EUR/USD is higher

• Zloty Poland remains stable but failed to appreciate even though the highest in EUR/USD. Most adjustments have occurred through USD/PLN, which reflects a broader dollar weakness than zloty power. EUR/PLN has performed badly both HUF and CZK in responding to the presidential election in Poland, with the victory of the surprise of the right wing candidate, and political polarization that damaged fiscal consolidation, although the deficit was more than 6% of GDP.
• The EUR/PLN exchange rate moves around the level of 4.25 (an average of 200 days) in the bound trade (4.24-4.25). Poland National Bank was surprised by July cutting together with the Governor’s Dovish axis. We have an estimated NBP lower level with a terminal level of 3.5%, which will place the NBP as the most dovish central bank in CEE, and that is why the last tender shows the offer of 1.6 offers at the Poland government bond auction.

EUR/HUF: Forint Enjoying the period of calm before the storm

• Forint has benefited from positive global sentiment in the past month. However, even in this favorable environment, the EUR/HUF gravity line remains at 400.
• Uptick in the June headline inflation convinced several market players from the ongoing Central Bank Hawkish rhetoric, but even with repricing rates, HUF could not break below 398.
• Given the deteriorating prospects for the Hungarian economy, the market will again take the opportunity to determine more prices at the end of this year. We anticipate the stability period in the short term, but still bearish in the medium term, expecting EUR/HUF to reach 410 at the end of the year.

EUR/CZK: Differential Growth and Level Make Koruna Shine

• The Czech economy is regulated to maintain the superiority of its growth performance above the Euro zone. The fundamental forces related to real economic performance will continue to provide fair winds for the Koruna screen. Indeed, the Czech economy might be immediately powered by a solid household expenditure machine, a booming construction sector, and maybe the bottoming-out industry, maintaining strict labor market conditions.
• Differences in the level of Euro have been trending upward nominal since the middle year and switched to positive areas in real terms at the beginning of this year. In addition, CNB understands that domestic inflationary pressure has increased in number and amount, which will foster a council hawkishness. With the stability of the CNB level as a basic scenario, while the ECB cuts in September, Koruna will continue to submit an offer.

EUR/RON: Partially cleaned fiscal uncertainty

• EUR/RON has been hovering gradually higher over the past month, moving from an area of 5.02-5.03 to around 5.07-5.08, because the dynamics of the market is normalized in the post-selection environment.
• Adoption of fiscal packages has helped alleviate concerns, with the market responding positively. However, structural imbalances-especially the trade deficit-settop are a source of medium-term pressure on RON.
• Romanian National Bank has maintained a stable hand and we hope that the main level remains for the rest of this year, although interbank liquidity must gradually improve. We continue to see the couple who ended the year near 5.10, with a short-term movement possibly contained in the range of 5.05-5.10 which was more easily volatile.

EUR/RSD: Dinar anchored carefully

• EUR/RSD remains very stable around 117.20 over the past month, supported by solid macro fundamentals and sustainable fiscal discipline. Infrastructure investment remains a driving force for the main growth, while social tension raises a limited risk of decline.
• Regarding expectations, Serbian National Bank maintains the main policy level unchanged at 5.75% at the July meeting, reiterating the attitude of conscience in the midst of a stable inflation and a balanced risk. FX market stability has been maintained with minimal intervention.
• We continue to expect NBS to maintain currency stability through an estimated horizon, without a large deviation from the current level of level.
  Source: Ing