CEE currencies likely to be positive in 2018, EUR/CZK to strengthen towards 26 by end-2018 – Nordea Bank

Given the positive economic developments in the CEE economies and the increased likelihood of interest rate hikes in 2018, the CEE currencies for next year are likely to be positive despite the likely rally of EUR/USD pair, noted Nordea Bank in a research report. However, the CEE currencies are not particularly vulnerable to EUR/USD gains.

There is a possibility of a slight depreciation of the Polish zloty against the euro at the end of 2017 because of the elevated political risks with the pending judiciary reforms and continuing disputes with the EU. In the medium-term though, the Polish economy is expected to underpin the currency leading to its strengthening.

Following the removal of the FX floor, the EUR/CZK headed down strongly and is likely to stabilize around 26.25 level in the remainder of this year after a gradual strengthening towards 26.00 EUR/CZK at the end of 2018. There is possibility of the Czech koruna to strengthen further if the Czech National Bank becomes more hawkish that expected currently, stated Nordea Bank.

Meanwhile, the Hungarian forint is expected to gradually appreciate towards 290 against the euro, after the strengthening driven by fundamentals this year. Risks to the projections mainly consists of the renewed risk-off sentiment that might drive the risk premiums on the CEE currencies slightly up.

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