According to ING’s Frantisek Taborsky, Central and Eastern European (CEE) foreign exchange markets are currently being driven by global headlines and a hawkish repricing of US interest rates, with local economic data having only a limited effect on currency movements [1]. The region experienced strong hawkish repricing last week, influenced not only by US job data released on Friday but also by broader market dynamics. Market expectations have shifted towards nearly three rate hikes in Poland and almost four in the Czech Republic over the next year [1].
Despite these higher local rate expectations, the strengthening US dollar is exerting downward pressure on CEE currencies, leading to a sell-off in emerging markets and erasing gains from previous days [1]. The prevailing risk-off sentiment in global equity and rates markets is expected to bring further challenges for the CEE region in the near term [1].
Within this context, the Polish zloty is identified as the most vulnerable currency in the region. This vulnerability is attributed to the dovish stance of the National Bank of Poland, which leaves the zloty exposed to testing the upper end of its current trading range of 4.225–4.265 [1].
Analysts suggest that, given the current market environment, the CEE region—and particularly the Polish zloty—may face additional pressure in the days ahead as global risk sentiment remains negative and the US dollar continues to strengthen [1].
CONCLUSION
The Polish zloty is highlighted as the most at-risk currency in Central and Eastern Europe due to global risk-off sentiment and a stronger US dollar, despite expectations for higher local rates. Market participants should remain cautious as further volatility is anticipated in the region.