EUR/CZK: Higher yields to encourage a stronger koruna – MUFG

During July the Czech koruna advanced marginally against the euro from 25.495 to 25.485. Looking ahead, the Czech National Bank (CNB) rate hike expectations are set to continue to support CZK, according to economists at MUFG Bank.

Further COVID-19 disruption is the main risk to tightening plans

“The widening policy divergence between the ECB which has strengthened its commitment to maintain low rates, and the Fed’s gradual shift to tighter policy has triggered a period of European currency weakness. Recent koruna weakness though will allow the CNB more leeway to continue raising rates.” 

“A weaker koruna would make it more likely that a hike could be delivered at ‘every coming meeting’. Our base case is for more two more rate hikes this year.”

“Further COVID-19 disruption to the economic recovery in the Czech Republic is the main risk to their tightening plans.”

“Overall, we believe that the rising rates in the Czech Republic will encourage a stronger koruna once current global growth concerns ease.”