EUR/CZK: Higher yields to encourage a stronger koruna – MUFG

During August the Czech koruna strengthened marginally against the euro from 25.485 to 25.425. As economists at MUFG Bank note, CNB rate hike expectations continue to support a stronger CZK.

Growth is expected to strengthen, building upside risks to inflation 

“Fortunately, there is no clear evidence of another COVID-19 wave yet in the Czech Republic which is helping to limit negative spill-overs to the koruna.”

“The combination of stronger growth and inflation supports the CNB’s decision to keep raising rates, and there is now a higher risk of a larger 0.50 point hike being delivered at their next policy meeting.” 

“Yield spreads should continue to move in favour of the Czech Republic encouraging a stronger koruna in the year ahead.”