ECB could affect timing of EUR/CZK floor

The ECB's QE may affect the timing of when the floor of EUR/CZK is scrapped. The CNB will do what it can to prevent the CZK from strengthening too much once the floor has been removed. Partly, the CNB believes that the success of the floor - in keeping inflation higher than it would otherwise have been and certainly higher than in the Euro area - has lifted the equilibrium or fair value of EUR/CZK. Partly, the CNB will try not to remove the floor at a time when there is not too much pressure on the floor.

The ECB's QE could put more pressure on the floor and increase the level of FX intervention needed to keep the floor in place. This view is supported by market reactions since the ECB meeting last week, where pressure on the forward curve seems to have been reignited. 

"Thus, the ECB's QE makes a late Q1 scrapping of the floor more likely than an early Q1 move. Still, the forward curve still factors in less CZK appreciation than we have in our end-16 forecast", says Nordea Bank.