EMEA FX Strategist Frantisek Taborsky at ING says the Czech National Bank’s (CNB) June minutes confirm it as the most hawkish central bank in the region after its 25bp hike to 3.75%. Markets price another hike as core inflation risks persist. Despite recent EUR/CZK upside on Dollar strength and risk-off sentiment, Taborsky expects CNB policy and a softer Dollar to push EUR/CZK back below 24.150.

CNB stance underpins koruna despite EUR/CZK rise

"The Czech National Bank published the minutes from its June meeting yesterday, when it raised rates by 25bp to 3.75% and became the first CEE [Central and Eastern European] central bank to respond to the US-Iran conflict. However, the minutes suggest the board’s main concerns were rooted more in the domestic economy than in the global backdrop."

"While the headline message was that the hike does not mark the start of a new tightening cycle, the discussion showed a more nuanced picture. Karina Kubelkova voted for no change, preferring to wait longer given the end of the US-Iran conflict and the related disinflationary pressure. By contrast, some board members indicated that further hikes may be needed if domestic inflation pressures persist."

"Overall, the minutes confirm that the CNB remains the most hawkish central bank in the region. Our baseline is unchanged rates for the rest of the year, but the bar for another hike is relatively low."

"Three more inflation prints are due before the August meeting, and another rise in core inflation above 3.0% could give the CNB a reason to hike again. Markets are already pricing one more hike, and we expect this to remain the case, with upside risk for front-end rates."

"Still, a hawkish CNB should keep CZK supported, while our expected US dollar turnaround and a less hawkish ECB should add support from the global side, allowing EUR/CZK to move back below 24.150."

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