EUR/CZK likely to drop to 25.90 levels by year-end, says Commerzbank

The EUR/CZK currency pair is expected to drop to 25.90 level by the end of this year, on the backdrop of two rate hikes by the Czech National Bank this year. Market participants expect no change to the policy rate at the meeting scheduled for today. A minority expect a 25bps rate hike.

Board members, as well as the central bank's chief economist, have signaled that at least one hike before the end of the year is quite likely. The probability of a hike this month has admittedly reduced somewhat after the CPI print for August turned out to be softer than expected, Commerzbank reported.

Still, the economy grew by an ultra-strong 2.5 percent q/q in Q2; in Q3, the eurozone manufacturing cycle retained a strong footing; Czech wage growth is accelerating too. At least two senior board members have indicated that they might vote for a hike today.

Since fundamental developments have continued, it is more straightforward to assume that CNB raises rates today, following the unanimous rate hike decision of August, rather than to assume that it will skip one meeting and then raise next time.

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