EUR/CZK – Crown jumps to 4-year high on rate hike expectations

The Czech crown jumped to its strongest level in nearly four years on Wednesday on expectations the central bank could deliver its first interest rate hike in almost a decade, possibly as soon as August.

The zloty weakened slightly as parliament moved forward with work on a Supreme Court bill that critics say would politicize the judiciary in Poland, central and eastern Europe’s largest economy.

“The market might be beginning to speculate on a Czech National Bank hike already next month,” a Prague-based dealer said.

The crown was up 0.3 percent by 1001 GMT to 26.03 to the euro. The currency has gained nearly 4 percent since the Czech central bank lifted a cap on the crown in March.

On Wednesday, Bank of America Merrill Lynch brought forward its first expected Czech rate hike to Aug. 3, saying it forecast a hike every quarter from then until the rate reaches 1.0 percent in 2018 from 0.05 percent currently.

“Markets continue to underprice the CNB’s near-term tightening prospects,” Bank of America Merrill Lynch said. “It is a close call on timing, but it is just a matter of months for the hikes to come, in our view.”

The Polish zloty eased 0.2 percent to 4.2075 versus the euro, but stayed close to a 4-week high hit on Wednesday.

Dealers said opposition protests against a planned overhaul of the constitutional court by the ruling Law and Justice (PiS) party had so far had little effect on Polish assets.

Poland’s lower house voted on Wednesday to send the contested Supreme Court reform bill to a parliamentary committee. If passed, the bill would give parliament power to indirectly appoint Supreme Court judges, which the opposition says would politicise the judiciary and violate the constitution.

The European Commission, the EU’s executive, is due to discuss the Polish judicial bills in Brussels on Wednesday, having expressed concerns for months about the direction of reforms in Poland.


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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell