Central and Eastern European foreign exchange (CEE FX) markets have experienced a relief rally over the past two days, driven by improved global risk sentiment despite persistently elevated energy prices, according to ING’s Frantisek Taborsky [1]. The elevated oil and gas prices continue to imply some inflationary pressures in the region, but markets are currently assuming that the worst-case scenarios linked to the US-Iran conflict are not materializing [1]. As a result, rate hike expectations have been scaled back, with the number of hikes priced in across the region dropping from 2–3 to 1–2 since the conflict began [1].
Liquidity is returning to the market, and stabilization is evident, although Taborsky cautions that a re-escalation of tensions and another spike in energy prices could trigger renewed sell-offs, similar to those observed last week [1]. For now, the prevailing risk-on sentiment is guiding market behavior, and ING has already removed all rate cuts from its forecast for the CEE region, noting that rate hikes appear distant under current market conditions [1].
Upcoming central bank meetings are expected to reinforce this outlook. The Czech National Bank is scheduled to meet tomorrow, followed by the National Bank of Hungary next week. In both cases, ING anticipates pushback against rate hikes, presenting the market with an opportunity to receive rates at current levels [1].
Overall, the market is responding positively to the repricing of rate hike expectations and improved sentiment, but remains alert to potential risks from geopolitical developments and energy price volatility [1].
CONCLUSION
CEE FX markets have rallied as rate hike bets are repriced lower, reflecting improved global risk sentiment and stabilization. Upcoming central bank meetings in the Czech Republic and Hungary are expected to push back against rate hikes, supporting the current risk-on environment. However, market participants remain cautious about potential re-escalation of geopolitical tensions and energy price spikes.