Central European currencies begin 2020 on strong footing

Currencies of Central Europe began the New Year on a solid footing and further extended their gains from the end of 2019. In particular, while the Polish zloty reached six-month highs, the Czech koruna rose to the strongest level against the euro since April 2018.

Besides the overall bullish sentiment on risk-asset markets, the favourable macroeconomic data also played a role in the case of the Polish zloty and the Hungarian forint, noted KBC Market Research in a report. This is because the indexes of business confidences in the Hungarian and Polish industries rebounded considerably when the Hungarian PMI index rose to 53.9 in December and the Polish PMI index rose to 48 points.

Therefore, it appears that, contrary to the Czech industry where the slowdown has possibly not reached the lowest levels yet, Polish industry has already hit bottom and the entry into the New Year might bring a more rapid pace of industrial production growth once again.

“As concerns CZK’s gains these are rather dominated by a relatively wide interest rate differential between the CZK and euro rates. It is not excluded that the differential might actually widen this year as the latest CNB Minutes have revealed today”, noted KBC Market Research.

The two Bank Board members had voted for a rate hike in December, while the released Minutes indicate that it was said repeatedly that the risk of considerably adverse scenarios for the global economy was falling.

“According to some of the board members, foreign leading indicators were suggesting that the euro area cycle was now close to its trough and the likelihood of a further slowdown was low’”, noted KBC Market Research.