CEE FX: Rate increase expectations diminish as investors embrace risk – ING

Central and Eastern European Currencies Gain Amid Improved Global Sentiment

Frantisek Taborsky from ING highlights that currencies in Central and Eastern Europe have strengthened thanks to a more optimistic global outlook, despite persistent high energy costs that continue to fuel inflationary pressures. Since the onset of tensions between the US and Iran, financial markets have reduced their expectations for interest rate increases in the region, now anticipating only one or two hikes instead of the previous two to three. Upcoming meetings of the Czech National Bank and the National Bank of Hungary are likely to challenge the prospect of further rate hikes.

Market Adjusts Rate Hike Expectations

Over the past couple of days, the region has experienced a positive shift, with investor confidence improving even as oil and gas prices remain elevated. These energy prices are expected to contribute to additional inflation, but markets appear to believe that worst-case scenarios are not currently unfolding. As a result, the number of rate hikes anticipated since the US-Iran conflict began has dropped, with forecasts moving from two or three increases to just one or two this week.

Risks Remain Despite Stabilisation

Although market conditions are settling and liquidity is returning, the possibility of renewed tensions and another surge in energy prices cannot be dismissed. Such developments could trigger fresh sell-offs, similar to those witnessed last week.

Outlook for Rate Changes

For now, investors are following the prevailing risk-on sentiment. While predicted rate cuts have already been implemented in the CEE region, further rate hikes appear unlikely under current circumstances.

Upcoming Central Bank Meetings

The Czech National Bank is set to meet tomorrow, followed by the National Bank of Hungary next week. Both institutions are expected to resist calls for rate increases, providing the market with an opportunity to assess current rates.

This article was produced with assistance from an AI tool and subsequently reviewed by an editor.