ING’s Frantisek Taborsky notes that Central and Eastern European markets have shifted back to dovish rate expectations ahead of key inflation and GDP data. Taborsky points out that PLN, HUF and CZK rates are testing local lows, pressuring CEE FX, while he still expects EUR/PLN and EUR/CZK to remain within current ranges in coming days.

Rates rally tests FX resilience

"Despite the lack of a local story, PLN and HUF rates markets are testing new local lows and the CZK market has also returned to pricing in rate cuts after overreacting to higher inflation last week."

"We believe that inflation numbers in the coming days will support this narrative and we may see further market pressure pushing rates down."

"This overall puts pressure on CEE FX, which corrected some previous gains across the region yesterday."

"This is still more of a fine-tuning exercise and we do not expect a break from the current ranges for EUR/PLN and EUR/CZK in the coming days."

"The rally in CEE rates assets will be tested today by bond auctions in Poland, the Czech Republic and Hungary, where the next direction in the end may be set later by US labour market data."

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