Central and Eastern European markets face a quieter end-of-month period, but the key domestic focus is Thursday’s growth data. Czech 2Q GDP is pencilled in at 0.5% QoQ and 2.1% year-on-year, versus 0.2% QoQ and 2.2% YoY previously, implying firmer sequential momentum despite a softer annual rate. Hungary’s 2Q GDP is expected to rise to 1.2% QoQ and 2.4% YoY from 0.8% QoQ and 1.7% YoY, a profile consistent with stronger activity than earlier estimates suggested.
Friday brings Poland’s July inflation, forecast at 0.9% MoM and 3.1% YoY, up from -0.5% MoM and 2.5% YoY, with higher fuel prices after the expiry of retail fuel support measures driving the move. On policy, the Czech National Bank enters its pre-meeting blackout on Thursday ahead of August, with recent communication indicating another rate hike remains an option but without urgency, aligning with expectations for no change. Calmer geopolitical conditions are framed as supportive for CEE rates and for high-beta currencies such as the HUF and PLN, while the CZK may drift back above 24.200 EUR/CZK as rate differentials reassert themselves.
Regional Recovery and Market Positioning
We expect a solid recovery in Central and Eastern European (CEE) interest rate markets as global geopolitical risks begin to cool. The lack of escalation in Middle East conflicts over the weekend is opening the door for rate-hike pricing to return. Derivative traders should use this window to position for rising yields across the region.
We favor high-beta currencies like the Polish zloty (PLN) and the Hungarian forint (HUF) to benefit most from this improving sentiment. Poland’s inflation is set to jump to 3.1% in July due to rising fuel prices, which will likely keep the Polish central bank’s main interest rate steady at its current 5.75%. Going long on the PLN and HUF through forward markets offers a compelling carry-trade opportunity right now.
CZK Weakness and Hungary’s Growth Expectations
Conversely, we expect the Czech koruna (CZK) to weaken and push past 24.200 against the euro. While the Czech economy is showing better momentum with second-quarter GDP growth expected at 0.5% quarter-on-quarter, the central bank is entering a blackout period with no rate hikes on the immediate horizon. Buying EUR/CZK call options is a strategic way to hedge against this looming currency weakness.
Economic growth in Hungary is also accelerating, with second-quarter GDP projected to hit 1.2% quarter-on-quarter compared to 0.8% previously. This stronger-than-expected economic activity confirms that the regional recovery is on track. Traders can use interest rate swaps to capitalize on these robust growth figures, which should keep CEE central banks hawkish for longer.
