The week will open with Polish retail sales, wages and PPI figures for May. The market in Poland has jumped on the wave of dovish comments from several MPCs in the last two weeks and has outpriced almost all rate hikes this year. Friday’s industrial production figures for May showed some upside, and the market has returned to expectations of less than one hike. Today’s figures could confirm or refute whether rate hikes will be needed in market calculations.
Tomorrow, the National Bank of Hungary is likely to cut rates by 25bp to 6.00%. The central bank wanted to restart the cutting cycle in February (when it last cut rates), but the US-Iran conflict stopped the process. However, the general election in April brought a strengthening of the forint by about 6% versus the euro, and inflation has since surprised on the downside at 1.8% in May, the lowest in the CEE region. The central bank will present a new forecast, which should revise the inflation forecast downwards, and the market’s attention will be on communicating how many rate cuts we can expect this year. Our forecast expects 75bp this year with upside risk, but we expect the market to go for more.
The CEE FX market is dominated by a stronger US dollar, similar to the rest of the EM space, following last week’s Fed meeting. We have seen some pressure on currencies in the region in recent days. EUR/PLN jumped above 4.260, and for the first time since early April, it has broken out of its usual ranges. For now, the rate differential suggests fair levels in our opinion, but today’s data may decide the direction moving forwards. EUR/HUF saw a minor correction upwards after touching 350, and the NBH meeting creates additional upside risk. On the other hand, 355-356 levels could again attract new forint buyers.
Frantisek Taborsky
