ING’s Frantisek Taborsky highlights that Central and Eastern European FX is being driven by global headlines and hawkish US repricing, with local data having limited impact. Despite higher local rate expectations in Poland and Czech Republic, he warns that a stronger Dollar and risk-off sentiment are pressuring regional currencies, leaving the Polish Zloty most exposed within its 4.225–4.265 range.

US repricing and EM sell-off hit region

"Global headlines and hawkish US repricing continue to drive the regional story, while the busy CEE calendar is having only a limited impact."

"The CEE market saw strong hawkish repricing last week, not only due to Friday's US job data. Market pricing has returned to almost three rate hikes in Poland and almost four rate hikes in the Czech Republic in the one-year horizon."

"Despite the support of higher local rates, a stronger US dollar is, however, setting the direction for FX in CEE. The region is following the EM sell-off, erasing gains from the previous days."

"At the same time, the risk-off mood coming from the global equity and rates markets suggests more pain for the CEE region in the days ahead."

"At the moment, the Polish zloty appears to be the most vulnerable currency in the region, given the dovish National Bank of Poland story, with scope to test the upper end of its current 4.225–4.265 range."

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