The rally in Central Europe’s currencies despite the dovish stance of most of the region’s central banks.
The zloty has shot up against the euro this year; the koruna has strengthened sharply in response to the removal by the Czech National Bank (CNB) of its euro rate cap; even the forint has firmed by 2.2% against the euro since mid-December. Central Europe’s currencies are benefiting from reflationary pressures (particularly in the Czech Republic), inflows into equity and local bond markets, and positive sentiment towards developing economies.
- The 40-bp fall in 10-year US Treasury yields since mid-March will buoy world equity markets and encourage more exposure to EM ‘risk assets’.
- The 6% fall in the dollar index against a basket of currencies since early January is contributing to sharp euro and yen rises.
- Germany’s economy is performing strongly, in the first quarter enjoying its fastest growth rate in a year.
- This is underpinning expansion in Central Europe’s economies, particularly in Hungary and the Czech Republic.