CEE FX: Crown Leads as Policy Divergence Widens – Commerzbank

Commerzbank analyst Tatha Ghose, in a recent report reviewing CEE FX market performance, noted that the euro's strength above 1.17 provided support for high-beta currencies such as the Polish zloty and Hungarian forint, while the lower-beta Czech koruna also gained, leading the CEE currency pack.

**Policy divergence becomes core driver**

Ghose believes that the divergence in monetary policy paths among CEE central banks is becoming a key variable influencing exchange rates. Although the Czech koruna has the lowest beta coefficient among the three major CEE currencies, meaning it typically falls the least during broad market declines, this rally largely reflects the difference between the Czech central bank's relatively hawkish policy stance and eurozone policy expectations. Market reports indicate that the Czech central bank remains cautious about the pace of rate cuts amid slower-than-expected inflation easing, providing additional support for the koruna.

**High-beta currencies benefit from euro strength**

The Polish zloty and Hungarian forint, as high-beta currencies, are more sensitive to euro movements. The euro's strength above 1.17 directly improved market risk appetite for CEE assets. However, Ghose's review does not suggest this strength is one-way or sustained, but rather emphasizes that the EUR/HUF pair is currently trading around 362.52294, with the currency pair's direction still depending on the relative changes in eurozone and CEE economic data. According to Commerzbank's analysis, if the euro's momentum subsequently weakens, high-beta currencies would face greater pullback pressure than the Czech koruna.

**Beta differences determine pullback resilience**

From a beta perspective, the Czech koruna's defensive characteristics mean it may underperform high-beta currencies during rallies, but its declines are also relatively contained when market sentiment reverses. Commerzbank's framework suggests that the current CEE currency rally is more of a spillover effect from euro strength rather than a broad improvement in regional economic fundamentals. Investors need to monitor whether policy divergence can persist and whether the euro can hold above key levels.