EUR/PLN, EUR/HUF to gradually rise over coming year, says Commerzbank

The European Central Bank is likely to announce the tapering of its asset purchase in 2017, after which its monetary stance will be seen as less expansionary, noted Commerzbank in a research report. In the meantime, below target inflation in Poland, Hungary and Czech is expected to signify that the CE3 central banks will not be in haste to normalize rates; therefore, the CE3 central banks’ monetary stances might be easier as compared with the ECB.

These central banks are expected to welcome any currency depreciation that came from this widening differential because this might be one of the few remaining monetary channels in their toolbox, stated Commerzbank.

“This is why we expect EUR/PLN and EUR/HUF to gradually rise over the coming year; EUR/PLN to around 4.40 and EUR/HUF to around 317.00”, added Commerzbank.

Meanwhile, the scenario with EUR/CZK is less clear-cut. The exchange rate was raised to higher than market level and was kept at that level since 2013. It has been freed up last month. Therefore, majority of market participants expect it to decline going forward. However, it can only decline if the rationale of the central bank – that inflation has sustainably reached target -  proves correct, stated Commerzbank.

If inflation decelerated again, the Czech National Bank has warned that it might fight it by using new unorthodox monetary easing or even a new EUR-CZK floor.

“If the market were to sense that things are turning in such a direction, we can forget about EUR-CZK declining – there would be significant upside risk to EUR-CZK as existing heavy short-positioning would head for the door”, noted Commerzbank.