ING’s Frantisek Taborsky notes Czech inflation has surprised on the downside, but strong wage growth and stable core inflation keep the Czech National Bank on track for a rate hike at its June meeting. With markets likely to price further tightening, ING sees EUR/CZK testing 24.00 next week and expects more Koruna gains as Czech Republic becomes an early hiker in EM.

CNB tightening cycle paints bullish FX picture

"Without much surprise today, the CNB seems to be heading for a rate hike at the June meeting next week. The blackout period before the meeting starts on Thursday and we are likely to see more comments from the bank board."

"Even though the rate hike is largely priced in, we believe the decision itself has the potential to boost FX as the start of a cycle. Even though the CNB is unlikely to interpret this decision as the start of a series of rate hikes, the market will want to price in more tightening."

"EUR/CZK could thus test 24.00 next week with ambitions for more koruna gains later as the Czech Republic is an early hiker within the EM space, painting a bullish picture for the CZK."

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