Today’s calendar is basically empty, and it won’t get interesting until tomorrow. In Poland, industrial and labour market data will be published on Tuesday. Later we will see a decision from the National Bank of Hungary (NBH). We agree with the market and expect another 75bps rate cut, which was telegraphed last week by the deputy governor. Then, on Wednesday, we will see Polish retail sales. On Thursday, the Turkish central bank will raise rates again, by 250bps to 37.5% in our view. On Friday, Moody’s will publish a rating review of the Czech Republic, where it has held a negative outlook for more than a year. We see some chance for an improvement to the stable outlook here.
In the FX market, the forint reacted negatively to falling rates on Friday for the first time since the last NBH meeting, closing the divergence between FX and rates. However, this week will be key for the central bank meeting and communication and maybe new headlines coming from the EU story. We could very likely see higher volatility than in previous weeks, but given Friday’s depreciation, we are rather positive on the HUF. This should see it return to 376 EUR/HUF later this week.
In Poland, data this week should confirm the economic recovery, which could give impetus to markets to price out rate cuts in the short term. As we mentioned on Friday, we saw the appreciation in the last two days as premature, and EUR/PLN returned to 4.380, which we now see as fair value. But the short end of the curve, in our view, has a lot of potential to unwind some rate cuts from current expectations. This should be the main driver for PLN this week in our view, and 4.360 is thus a matter of time this week.
The Czech koruna, on the other hand, is following falling market rates, which should remain unchanged this week. The breakdown in the interest rate differential over the last two days to basically the levels prior to the last CNB meeting opens the way to EUR/CZK 24.600 in our view. And we can expect more this week after central bankers return to the headlines and re-open the question of rate cuts in December.