Czech crown seen surging, outperforming region

The Czech crown could surge almost five percent against the euro in the next 12 months, well outperforming Central European peers, as the central bank is seen removing its cap on the crown's value, a Reuters poll of analysts showed on Tuesday.
The median forecasts in the poll conducted on Feb 2-6 see the crown strengthening 2 percent against the euro by the end of July to 26.5, and by 4.6 percent in the next 12 months to 25.84.
That firming is possible only if the central bank removes the cap which has kept the crown weaker than 27 since 2013. The bank sees that happening around the middle of 2017.
Speculation for a surge in the currency after the exit boosted demand for crown assets early this month, forcing the bank to buy billions of euros to defend the cap. Its foreign assets jumped by 15 billion euros in January.
Czech central bankers have warned that the crown had got so overbought it may weaken rather than firm after the cap exit.
But according to the 12-month forecasts in the poll, the crown could well outperform Central Europe's most liquid currency, the Polish zloty which has been the region's best performer this year with 2.5 percent gains versus the euro.
Lifted by recent better-than expected economic output and manufacturing data, the zloty trades near 4-month highs and may have firmed too much relative to existing risks, analysts said.
It has been also helped by technical factors after it crossed the 4.3 line last week.
"The zloty is expected to remain fragile to external shocks (such as elections in European Union member states) during the first quarter," said Peter Virovacz, analyst at ING.
"In the second half of 2017, the zloty is likely to be supported by the growth recovery in Poland," he added.
Median forecasts in the poll see the zloty retreating to 4.355 by the end of April and recover to 4.3 on the 12-month horizon.
Romania's leu recovered this week after a fall to 7-month lows at 4.554 against the euro last week amid mass protests against a government decree to decriminalize some graft offences.
It rebounded to around 4.5 after the government scrapped the decree on Sunday, but the political background remains shaky, with anti-government protests continuing.
According to the poll, conducted before the decree was repealed, the leu could ease to 4.52 by the end of this month, but rebound to 4.49 by the end of January next year.
"Now it's mainly about politics," said Jakub Kratky, analyst at Generali Investments CEE, the Prague-based company which gave the most accurate exchange rate forecasts in central European currency exchange rate polls last year.