Growth expected to help CEE currencies shake off Trump shock

Central Europe's economic growth is expected to strengthen its currencies next year, led by the zloty and the Czech crown, after they reached multi-month lows in November, according to a November 28-December 1 Reuters poll of 45 analysts. At around 3 percent, the region's output is still expanding faster than the euro zone's, but gains by the dollar and by global bond yields since Donald Trump won the US presidential election on November 8 have hit Central European assets, including currencies.
Analysts said uncertainty over US policies and the politics of Western Europe may continue to cause swings in regional currencies in coming months. But the region's two most liquid currencies, the zloty and the Hungarian forint, may strengthen by about 1 percent from Wednesday's close by the end of 2016, after both were hit hard this month. The Romanian leu is expected to move sideways or gain slightly this year and next. Romania will hold elections on December 11, and its government is likely to continue a policy of fiscal stimulus. But that is unlikely to weaken the leu, which is managed in relatively tight ranges by the central bank. The forint is seen rebounding to 310 to the euro by the end of the year from Thursday's levels around 314. It should stay near that level over the next 12 months.
The forint is buoyed by Hungary's trade surpluses, but the central bank repeatedly moves to weaken it with market liquidity boosting measures. The zloty is expected to gain 3.7 percent to 4.29 against the euro by the end of November next year, according to the poll. That is slightly weaker than the 4.25 forecast by the previous poll, which was conducted before the US elections.
Only five of 22 analysts surveyed projected that the Czech central bank would abandon its ceiling on the value of the crown of 27 to the euro by the end of May. But 18 of 21 analysts who gave forecasts for the 12-month horizon said that the cap would be lifted by then. Their median forecasts for the crown's level at the end of November 2017 was 26.27. That would represent a 3 percent strengthening of the currency. Some expect an even bigger surge. "We expect the CNB to exit the EUR/CZK floor in 2Q17. We estimate the medium-term EUR/CZK fair value at around 25.50," said Peter Virovacz, analyst of ING in Budapest.