News & Analysis

As inflation concerns intensified over the course of the last two quarters, many central banks in the EM space were forced to hike their interest rates in order to prevent their currencies from selling off and to mitigate further price pressures. The effects were visible in the currencies of Hungary and the Czech Republic, which managed to steer away from weakening against the euro and dollar since March this year, whereas the Polish zloty failed to benefit from this due to divergences in Poland’s monetary policy compared to the other CE-3 countries. Much of this divergence occurred in Q2, as this was when the normalisation policies were announced. More recently, over July and August, USDHUF increased more than 6% compared with a 4% increase in USDPLN and a 3.25% rise in USDCZK. The more dramatic depreciation in PLN and HUF was due to the double whammy of legal disputes with the European Union and increasing inflation, while the Czech koruna only had inflation on its mind.

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Author: Ima Sammani, FX Market Analyst



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