No reason for the crown to appreciate – Commerzbank

The extra boost that EC3 currencies are receiving from the appreciation of the euro (EUR) was briefly interrupted as the euro corrected below the 1.10 level, notes Tatha Ghose, FX analyst at Commerzbank.

Koruna is not ready to keep appreciating

“Along with peers such as the Hungarian forint, the Czech crown also weakened slightly as a result. In this context, the positive PPI surprise in the Czech Republic for July hardly had a counter-effect. Not only because there was nothing significant in the PPI data, but also because the currency has already recovered somewhat in response to a previous upward surprise in the CPI.”

“In terms of the PPI surprise, prices have returned to a positive month-on-month change after several months of month-on-month deflation. Of course, price levels should not be expected to continue to fall every month, so a reversal of this extra-dovish trend was to be expected.”

“The data still argues for some further rate cuts, even if they are not urgently needed to combat sub-target inflation. Where such fears were prominent a month ago, such fears have now been reversed. This warrants a modest crown rally. But the bigger effect is probably the euro rally itself. Once this has peaked, we should not expect the crown to continue appreciating.”