NEWS / Foreign Exchange

The booming Euro cousins

In recent weeks the Central and Eastern European currencies have strengthened significantly with the Czech koruna (CZK) and the Polish zloty (PLN) in particular doing well. The strengthening of the CEE currencies to a large degree must be seen in the light of the euro??™s continued surge against the US dollar as the CEE currencies are ???high-beta??? versions of the euro. Hence, when the euro is strengthening it is often so that a euro??™s ???cousins??? in CEE are doing well also. This was the case last autumn and the case again this autumn.

Furthermore, the election results in Poland with the reformist Civic Platform (PO) winning a landslide victory undoubtedly have also supported the positive sentiment in CEE FX markets.

Looking ahead the next couple of weeks we expect the CEE currencies to continue to strengthen a bit on the back of the continued strengthening of the euro against the dollar. That said, if USD rebounds against the euro we think that the CEE currencies would lose steam. Hence, if there are signs USD should rebound then it probably will be time to short the CEE currencies, but for now there are no such signs.

In addition there are still risks of more bad news hit-ting the markets from the financial sector. Yesterday, for example, rumours concerning a capital shortfall at Citigroup rattled the markets and affected most high-beta assets negatively. This additional risk factor is surely something investors have to think about when entering high-risk financial markets.