The Czech koruna gained slightly on modestly improving sentiment on the global equity markets. The pair touched 25.52 EUR/CZK without any significant domestic impetus on the table. Today the Czech GDP should be revised upwards. We expect the positive developments in the inventory cycle and export recovery to offset weaker domestic demand.

Nevertheless we are somewhat suspicious hearing about a delay in the announcement due to an “additional piece of information”. This could point to a pretty significant revision. Beside the GDP, it is mainly the sentiment on the global equity markets that should continue to drive the koruna, which may try to test 25.50 EUR/CZK in the near term. Yesterday the Czech yield curve steepened slightly. Nevertheless, the changes were small, even though business volumes were above average this time. The shorter end of the curve eased by 0.5 bps and longer maturities rose 1.5 bps. The current account deficit had hardly any impact. Therefore, the development may be attributed to adjust-ing positions. The move at the longer end could also correspond to Moody’s warning that it may lower the country’s rating. Moody’s rating agency warned that if the CR does not start reducing its debts immediately after the elections, the country’s credit rating could be downgraded. It is a serious warning and politicians should take it seriously when promising various benefits before May’s elections. Today's final value of GDP should not bring any significant surprise, even if a (small) upward revision can not be excluded. However, we do not expect significant changes on the Czech bond market.

Hungary The Hungarian forint had a stable day on Wednesday and the pair remained in the narrow range of 267.50-266.00. Today’s inflation and foreign trade balance data were both better than the consensus, but the currency did not react to them. Global emerging market currencies however seem to have been slightly weakening on the back of fading optimism on equity markets, which could keep the forint more sensitive towards weakening.

The Hungarian fixed income bonds did not change at all yesterday and yields remained the same. The only interesting market was the FRA, where the market began to consider the possibility of two more rate cuts from the current 5.75% level. Interest rates in forward tenors dipped slightly below the key 5.50% level, which is the bottom in our view on rates. Hence further lowering of the FRA curve could be used as an opportunity to hedge interest rate positions for a negative post-election scenario. Poland The Polish zloty failed to extend gains as it faced further verbal interventions from the MPC. It is pretty interesting that the dovish rhetoric came from the central bank chief Slawomir Skrzypek. Last week he envisioned rate hikes. On the other hand yesterday he warned that fundamentals did not justify the current state of the currency markets. From a short term perspective the domestic scene is rather empty. Hence the zloty should follow the sentiment on the global equity markets in light of Chinese figures and in the afternoon, the US initial claims.

KBC