Inflation is printed to set the next direction – ING

This week’s focus in the CEE region will be on inflation. Tomorrow the August figures will be published in the Czech Republic and Hungary, and on Wednesday in Romania. On Friday, we will see the final inflation figures in Poland, notes ING FX strategist Frantisek Taborsky.

Inflation data to move CEE currencies

“In the Czech Republic, we expect a slight decline from 2.2% to 2.0% per year, narrowing the deviation from the Czech National Bank’s forecast of 1.8% by a tenth. We expect a slight acceleration in core inflation from 2.2% to 2.4%. In Hungary, we expect a decent decline in inflation from 4.1% to 3.6% per year. Meanwhile, core inflation should rise slightly from 4.7% to 4.8%. Here too, however, the deviation from the forecast of the National Bank of Hungary should narrow.

In Romania, we expect inflation to decrease from 5.4% to 5.0% YoY. And finally, we should see confirmation of the fast estimate of 4.3% YoY in Poland. Markets are still driven by the global story, but we think inflation figures from the region could set the direction for FX. For now, we remain quite modest in the region. EUR/HUF quickly reached our higher levels on Friday, and while we believe conditions do not point to further HUF weakness, we do not believe the market repricing is over yet.

If inflation comes close to the NBH forecast, it would signal further weakness in the HUF. EUR/CZK is resisting the upward pressure for now, indicated by the rapid decline in the exchange rate differential. However, we continue to see a tactical move up towards 25.20 before reverting to our previous view below 25.00. We continue to see EUR/PLN trading in the 4.270-280 range.