Central and Eastern Europe FX: Czech National Bank's Dovish Turn vs. Polish National Bank's Hawkish Shift – ING

ING analyst Frantisek Taborsky notes that the Czech National Bank's recent dovish signals contrast sharply with market expectations of at least two more rate hikes and a hawkish repricing. Despite renewed upside pressure on inflation, he still expects EUR/CZK to trade within a 24.350 to 24.400 range, supported by seasonal koruna strength.

**Czech Central Bank: Dovish Signals Intertwined with Hawkish Reality**

Despite the Czech central bank's dovish signals, strong domestic wage growth data significantly exceeding the bank's forecasts has forced markets to reassess the rate path. The Czech central bank governor has reportedly delivered hawkish remarks, suggesting that a pause in the rate-cutting cycle is imminent and could be prolonged. ING economists predict that the likelihood of a pause in the rate-cutting cycle in December and February next year is becoming very high, an expectation that has already pushed EUR/CZK below the 25.200 level. The institution believes the koruna has room to strengthen further to 25.100.

**Polish Central Bank: Hawkish Tone Supports the Zloty**

The Polish central bank announced on Wednesday that it would hold rates steady at 5.75%, in line with market expectations. ING analyst Chris Turner notes that the accompanying statement, while offering little new information, shows a slightly more moderate dovish tone than in November, remaining broadly hawkish overall. Interest rate markets sold off around 5-7 basis points following the statement, supporting zloty strength, with EUR/PLN quickly hitting the 4.280 level. Analysts suggest that the Polish central bank's hawkish stance will continue to provide support for the zloty, but current valuation levels appear somewhat stretched.

**Central European Currency Outlook**

Overall, central banks in the Central European region are adopting a hawkish stance, providing support for local currencies. Similar to the Czech Republic and Poland, market expectations of monetary policy tightening are driving currencies stronger against the euro. However, ING also cautions that after currency pairs such as EUR/PLN hit key levels, the scope for further tactical gains may be relatively limited.