EUR-CZK moves closer to 27.00 floor

EUR-CZK has been drifting lower towards its 27.00 floor, and reached its lowest since mid-March yesterday: the difference with mid-March however is that the EUR was rapidly weakening then, and CZK was struggling not to appreciate against it, with EUR-CZK still drifting mildly lower.

Now, EUR-CZK is drifting lower, despite a strengthening EUR: and the driver this time is accelerating Eurozone and Czech inflation, which has removed expectations from the market about further monetary support from the CNB. 

This week, CNB board members, Tomsik and Lizal, separately remarked that inflation is still lown the Czech Republic and that the FX intervention framework will be maintained at least until H2 2016 as scheduled - but their comments were no longer ultra-dovish. The board no longer entertains the idea of adding more monetary accommodation, or shifting the EUR-CZK floor up towards 29.00.

"EUR-CZK is likely to hover in the 27.20-27.40 range over the coming quarters, ultimately moving closer to 27.00 next year, as the market discounts exit from the floor mechanism in late-2016", forecasts Commerzbank.