The eleventh week of the third year of the war finally brought the decision of the NBU to start the largest wave of FX liberalization since the war started. The minutes of the NBU monetary committee’s meeting still do not provide arguments to change our forecast of the year-end policy rate. NBU reserves have dropped moderately in April on small aid and higher interventions. Budget deficit looks better this year than in 2023. |
The markets are on the lookout to register all relevant signals and their implications for interest rates with the utmost attention. For EUR/USD, this means a slightly higher notation after the Fed and the labour market report, which nevertheless failed to support the yen. In Switzerland, the slight rise in inflation could not shake the markets. In contrast, a change in interest rate expectations in the Czech koruna triggered a move below the EUR/CZK 25 mark, while the risks in the HUF levelled out, which recently led to low volatility. This issues features
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On the tenth week of the third year of the war, the NBU finally decided to take more active steps regarding the FX liberalisation. Business sentiment in April remains in a positive zone, thus indicating an optimistic outlook for the near-term future. External aid improved the balance of payments in March, while external trade and current account deteriorated. Public debt increased in March to historical maximums, while we downgraded our year-end forecast of debt-to-GDP for this year. |
The ninth week of the third year of the war brought the greatest surprise over several months, i.e. the approval of aid to Ukraine by the US Congress, which led to the stabilisation of the FX market. NBU cut its key policy rate more decisively by 100bp, to 13.5%, and announced some steps to liberalise the FX market in the coming weeks and the EU outlined the investment component of the Ukraine Facility. |
Central banks and interest rate expectations remain a recurring theme in our analyses. For a change, the last few weeks have additionally brought increased geopolitical uncertainty due to the escalation of the conflict between Iran and Israel. Nevertheless, the biggest issue for EUR/USD was probably the change in interest rate expectations regarding the Federal Reserve. The Swiss franc was relatively unimpressed and only reacted to the events in the short term. The złoty, in contrast, saw an overshooting reaction and, thus, a long-awaited correction. In Russia, the current account balance remains the central factor for the path of USD/RUB, although its recent expansion has not yet been reflected in a stronger exchange rate. Good news regarding a US aid package might bolster the hryvnia in the near future. This issues features
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