The Czech Koruna weakened sharply after the central bank formally ended its FX intervention framework. Economists at Commerzbank analyze CZK outlook.
Broader EM sell-off and will likely reverse as and when the market switches back to risk-on
The end of the FX intervention regime should not make much difference because no intervention was being used in recent months to begin with (it was last used in October 2022). We have a different interpretation from commentators who viewed the change to mean that CNB has decided to ‘accept a weaker exchange rate’. We found the CZK sell-off puzzling and kneejerk – and we forecast the currency to regain lost ground over the coming months.
There is not a lot of idiosyncratic Koruna weakness to explain in recent days. The weakness versus the Euro was partly a reflection of the broader EM sell-off and will likely reverse as and when the market switches back to risk-on.
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