ING strategist Frantisek Taborsky notes that a stronger Dollar and lower Oil have led markets to outprice most rate hikes in Poland and the Czech Republic, adding pressure on regional FX. With Polish inflation expected to fall to 2.9% and Turkey’s annual inflation seen easing to 31.9%, he anticipates rates on hold in Poland and EUR/PLN capped near 4.300 despite potential tests of 4.290.

Regional currencies face renewed headwinds

"Last week in the CEE region was marked by oil relief and a stronger US dollar. The result is an outpricing of most rate hikes in Poland and the Czech Republic, but also some pressure on weaker FX."

"This week, attention will be on Tuesday's inflation figures in Poland for June. We saw a significant downward surprise in May, mainly due to food prices, and our economists now expect a decrease from 3.1% to 2.9% largely as a result of lower fuel prices."

"This should confirm that National Bank of Poland rates will remain unchanged this year."

"On Friday, Turkey will publish June inflation. We expect monthly inflation to moderate further to 0.8%, resuming a downtrend in the annual figure to 31.9% from 32.6% a month ago."

"Weekend headlines from the Middle East suggest a mixed opening, which, together with a stronger US dollar, suggests further pressure on CEE currencies. EUR/PLN could test 4.290 again for further upside, but we believe 4.300 should be sufficient resistance for now."

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