The Czech National Bank (CNB) announced intervention in the FX market. As a result, EUR/CZK returned below 25.00. However, more action may be needed to support the koruna given dovish prospects, economists at ING report.
EUR/CZK below 25.00 is the CNB's goal
“CNB intervened in the FX market for the second time this year a day after the appointment of a new governor, who will take over on 1 July. As a result, EUR/CZK returned below 25.00, which we believe is the CNB's goal. For now, this is mainly a verbal intervention, just like after the outbreak of the Ukrainian conflict, with minimal central bank activity in the market.”
“Markets are bracing for the arrival of a dovish board, which is taking away support for the koruna in the form of record interest rate differentials. Thus, it can be expected that the central bank will have to stay in the market longer and at a greater cost than before. By 1 July, we expect nothing to change in the CNB's current approach and the koruna to remain below 25.0 EUR/CZK.”
“In the long run, if the new board is serious about its dovish direction, we can expect a much more frequent central bank presence in the market.”
