All balls now on Eastern Europe

Eastern European countries have not yet been able to make a big impression at the European Championship. In recent months, this also applies to the currencies of Poland, the Czech Republic and Hungary, among others. Next week's economic figures could change that.

Eastern European countries have not made football hearts beat faster with eye-catching play in recent weeks. Yet Poland and the Czech Republic still have a view of the next round, while Hungary probably already qualified thanks to a very late goal against Scotland. On currency markets, zloty, krona and forint are often mentioned in the same breath. This mainly has to do with the geographical location. There is quite a big difference between the policies of the central banks and the strength of the currencies. The central bank of the Czech Republic, for example, is working hard to reduce interest rates. Next Thursday there will be another reduction of a quarter or perhaps even half a percent.

Be careful with the Czech competitive position
That would be the fifth interest rate cut in just over six months. The Czech central bank is mainly aimed at boosting the economy. The economic growth of 1,5% this year and 3% in 2025 does not compare so badly with the rest of Europe. But due to high interest rates, business investments have fallen sharply to the lowest level since 2018. In the longer term, the international competitive position of the industry may come under pressure due to lagging investments. Because inflation is rapidly creeping towards the 2% target, there is also plenty of room to further reduce the policy interest rate. Falling interest rates make it less attractive to hold assets in a currency. In the past year, the krone has lost 5% of its value.

Wages are skyrocketing in Hungary
Interest rates have also fallen rapidly in Hungary. The central bank in Budapest has adjusted its main rate in nine steps from 13% to 7% since the autumn of last year. The forint fell by 6% against the euro last year. But the prospects are considerably better than those for the Czech koruna. Wages are rising rapidly in Hungary. The most recent figures indicate an average salary increase of 13,5%. Growing incomes often stoke the fire under inflation. The combination of higher wages and a reasonable economic growth rate gives Hungary's central bank plenty of room to pause with new interest rate cuts for the time being.

Polish zloty is in demand
This also applies to Poland, where the central bank in Warsaw will cut the interest rate decision next Wednesday. The main rate has been 5,75% since November. Yesterday morning it was announced that retail sales increased by 5% in May. This is a new indication that the economy is doing well, while inflation of 2,5% is exactly in line with the target level of the Bank of Poland. Due to the prospect that the policy interest rate will fall considerably less rapidly than in the eurozone, the zloty is in considerable demand. The currency has risen by 4% over the past twelve months. And unlike the European Championship, Poland has better prospects on the currency market than other countries in Eastern Europe.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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