A firmer Dollar and softer oil prices have prompted markets to price out most expected rate hikes in Poland and the Czech Republic, increasing pressure on weaker CEE currencies. Focus shifts to Poland\u2019s June inflation print on Tuesday after May\u2019s downside surprise, with forecasts pointing to a move from 3.1% to 2.9%, largely driven by lower fuel prices. The implication is that National Bank of Poland policy rates are expected to remain unchanged this year.<\/p>\n
Turkey\u2019s June inflation is due on Friday, with monthly inflation seen easing to 0.8%, which would pull annual inflation down to 31.9% from 32.6% previously. Separately, weekend newsflow from the Middle East was described as mixed, reinforcing a cautious tone alongside the stronger Dollar. EUR\/PLN is seen retesting 4.290, while 4.300 is framed as near-term resistance.<\/p>\n
A stronger US dollar is causing some pressure on regional currencies. With the Dollar Index (DXY) recently climbing to a three-month high of 106.50 following a robust US jobs report, markets have almost completely priced out any further rate hikes in Poland and the Czech Republic. This has created a tougher environment for currencies like the zloty.<\/p>\n
We are watching this week\u2019s June inflation data from Poland very closely. The consensus forecast is for a drop to 2.9%, primarily driven by lower fuel costs as WTI crude has fallen to near $75 a barrel. This figure should cement the view that the National Bank of Poland will keep its key interest rate steady through the end of the year.<\/p>\n
This leads us to expect renewed upward tests of the 4.290 level in EUR\/PLN. We believe the 4.300 mark will act as a strong ceiling, a view supported by a significant build-up in open interest for call options at that strike price for July expiries. The upside potential seems capped for now.<\/p>\n
Therefore, we are considering strategies that profit from this expected range, such as selling EUR\/PLN call spreads with an upper strike at or just above 4.300. This dynamic feels similar to late 2024, when a combination of US dollar strength and falling energy prices led to a period of contained zloty weakness.<\/p>\n
Also on the calendar is Turkish inflation on Friday, which we expect will ease to 31.9%. While this may offer some brief support to emerging market sentiment, the primary driver for CEE foreign exchange in the coming weeks will remain the stronger US dollar.<\/p>\n\n\n\n