Difficult to keep good Koruna down

The Czech National Bank's (CNB) peg with Euro is clearly under threat as it is and going to be difficult to keep the good Czech Koruna down.

Latest manufacturing PMI report showed, while many economies in Euro zone are not able to keep up the pace (Spanish PMI slowed to 53.6 from 54.5 prior, Greek PMI slumped to record low of 30.2, French PMI stagnates at 49.6), Czech republic's PMI rose to 51 month high in July.

Highlights of Czech PMI -

• Czech PMI increased to 57.5 in July from 56.9 in June, highest since April, 2011.
• New orders and output both grew at faster rates along with strong hob creation.
• Orders have improved in both domestic front as well as from exports. Exports even to Russia showed improvement.
• While output prices rose marginally, input cost rose for fifth consecutive month.
• Moreover, since its inception in 2001, Czech PMI has averaged at 52.8.

CNB has pegged Euro with Koruna at 27, which is will be under threat due to contrast economic activities and monetary policy differentials.

Czech central bank declared to use Koruna exchange rates another tool for monetary easing, so likely to defend the peg with utmost determination..... Doesn't it sound familiar?

Swiss National Bank (SNB) had made similar commitment before faltering on it this year.

Theoretically CNB can hold onto its peg, however that is not going to be easy if ECB comes up with further stimulus, or European economic activity remains subdued or Euro drops further down towards parity with Dollar.