Time to prepare for a stronger CZK as an exit from the CNB’s floor is approaching – MUFG

Lee Hardman, Currency Analyst at MUFG, suggests that the performance of the Czech koruna is likely to garner more market attention in the year ahead as the Czech National Bank (CNB) moves closer to removing their self-imposed EUR/CZK floor at the 27.000-level.

Key Quotes

“It has prompted the CNB to signal clearly that it plans to maintain the floor until the “middle of next year”, and “will not exit the floor before Q2 2017”. The CNB has recently become more confident that it will exit the floor as planned.

The recent policy signals from the CNB support our updated forecasts for the koruna in our latest FX Monthly Outlook report. In the report we presented for the first time our EUR/CZK forecast for Q3 2017 which was set at 26.250.

Our forecast assumes that the CNB will exit the floor in Q3 2017.

We believe that the balance of risks to our forecasts is more skewed in favour of the CNB exiting the floor earlier in Q2 2017 rather than delaying beyond Q3 2017.

We expect the CNB to come under increasing pressure to defend the floor in the year ahead.”