ING Strategist Comments on CEE Asset Pressure

Frantisek Taborsky, a strategist at ING, indicates that Moody’s recent downgrade of Poland to A3 intensifies pressure on Central and Eastern European (CEE) assets as the month progresses. High energy costs, a robust US dollar, and minimal advancements in the US-Iran conflict are contributing factors to ING’s bearish outlook on CEE currencies. The bank anticipates a fair value range of 24.300-24.350 for EUR/CZK while expecting the EUR/PLN to potentially upward. Furthermore, EUR/HUF might see some short-term gains, but expected support for the forint around the upcoming National Bank of Hungary (NBH) meeting could pull the pair back towards 362.

Downgrade Reinforces Weak CEE FX

The latter half of the month usually tends to be quieter for the CEE region, with not much more than tomorrow’s meeting of the National Bank of Hungary grabbing significant market attention. Recent headlines from the Middle East and the US suggest a somewhat positive start for today’s markets. On Friday, Moody’s downgraded Poland to A3, aligning its rating with those given by S&P and Fitch. While the bond markets might have partially accounted for this, there’s likely to be some hesitation regarding Polish bonds this morning.

Today’s schedule includes Poland’s August wage data, which is a crucial indicator for the central bank. Retail sales figures will follow tomorrow, coinciding with the NBH gathering. The NBH is expected to pause its current “mini” easing cycle and maintain the policy rate at 5.50%. They are also set to release a new forecast and might adjust their inflation target, potentially indicating a gradual reduction from 3.0% to 2.0%.

In the Czech Republic, consumer demand data will be available on Thursday, followed by the minutes from the Czech National Bank meetings on Friday. These should shed more light on last week’s board discussions.

Overall, CEE currencies remain under pressure, and the outlook for the week is still bearish. Factors like limited progress in the US-Iran situation, high energy prices, and a strengthening US dollar are expected to obstruct any recovery. Following the CNB meeting last week, ING continues to view 24.300-24.350 as the fair value for EUR/CZK.

On the other hand, there is further upside potential for EUR/PLN, and today might serve as an early test post-downgrade. While EUR/HUF could see a rise today, tomorrow’s NBH meeting should offer temporary support for the forint, possibly letting EUR/HUF approach 362.