As inflation is decreasing and the next interest rate decisions are ahead, central banks must not only decide on interest rates, but also if or in which manner they intend to intervene in FX markets. In this regard, we see different tendencies. In Romania, strong capital inflows support the currency. However, weak fundamentals cast a shadow on the EUR/RON exchange rate. In case of a strong weakening, the NBR has enough means to defend the currency. The SNB has been strengthening the Swiss franc for some time now to dampen inflation, while the CNB formally ended the intervention regime, triggering a slight weakening of the Czech koruna. In Albania, the strong performance of the lek in recent months led the Bank of Albania to announce interventions aiming to depreciate the currency, supporting exports. Recent turbulences considering the rouble sparked discussions between the CBR and the Ministry of Finance about the need for further FX market restrictions. In this risky global environment, central banks have their hands full. To intervene or not to intervene, that is the question. This issues features
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The decision at today's meeting was almost a given and the stability of the key rate at 7% was not a surprise. However, the markets were caught off guard by the announcement of a formal end to intervention, even though the CNB has not been active in the market since last autumn. |
In line with our and market expectations, Czech inflation headed into single digits in June, with consumer prices rising by 9.7% year-on-year. On a month-on-month basis, prices increased by 0.3%. |
In the global arena, we have recently witnessed divergent developments. While economic data in the USA have recently surprised positively, the numbers on the other side of the pond have not been quite as convincing, somewhat fueling recession fears. This week, however, the focus is on the decisions of the two major central banks, the Fed and ECB. Ahead of the central bank meetings, EUR/USD attempted to break out to the upside but proved to be rather volatile. In contrast, the Swiss franc moved more in the opposite direction, reaching lows not seen in a long time. The Swiss National Bank (SNB) is likely a significant factor in this trend. Another interest rate decision is due in the Czech Republic next week, with bets on a faster rate cut weighing on EUR/CZK. In SEE, the currencies perform strongly. Particularly, the Albanian lek is appreciating further, supported by an excellent tourism season. On the other hand, in Russia, the rouble is still struggling with a weakening trade surplus. This issues features:
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Recent publications of economic indicators caused some negative surprises. Europe in particular failed to meet expectations, casting doubt on the narrative of a soft landing. While the headwind for the euro was rather limited, recession risks might remain a recurring factor in the months ahead. The picture for CEE countries is more neutral in terms of economic surprises. Strong fundamentals in Poland support the Polish złoty, although risk factors such as uncertainty regarding the recent ECJ ruling on foreign currency loans or the upcoming elections in fall remain. In the Czech Republic, the central bank meeting ended as expected with a constant key rate, and the Czech koruna accordingly showed a muted reaction. In Eastern Europe, we look back on a more eventful weekend. However, the political turmoil had only a limited impact on the ruble, as the story was over before trading started again. Nevertheless, it revealed vulnerabilities of Russia's political system, representing a factor of uncertainty in the long-term. This issues features:
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