ING’s Frantisek Taborsky notes that headlines on a possible end to the US-Iran conflict triggered a risk-on move, helping Central and Eastern European currencies erase recent losses. He highlights a likely Czech National Bank rate hike next week and a baseline 25 bp cut from the National Bank of Hungary, with scope for 50 bp if EUR/HUF rallies towards 350 in a post-conflict relief scenario.

Regional currencies benefit from risk-on tone

"Yesterday's headlines about a possible end to the US-Iran conflict quickly switched the market back into risk-on mode, with CEE currencies benefiting before the end of trading. The zloty erased previous losses after touching the upper edge of the current 4.225-260 range. EUR/HUF tested new lows below 354, and a positive mood can be expected at today's opening."

"From the perspective of oil prices at this moment, it seems that the current decline is not enough to change central banks' thinking. The genie is already out of the bottle, and the impact on inflation is already visible."

"The Czech National Bank is likely already determined to hike rates next week, in our opinion, and even a quick end to the US-Iran conflict would not change this."

"The National Bank of Hungary may be a different story, and while a 25bp rate cut in two weeks is our baseline, a 50bp move cannot be ruled out. If we were to see a quick rally in the forint closer to 350 per euro in the post-conflict positive mood, it could change the NBH's thinking and speed up easing."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)