The Hungarian forint, Swedish krona, and Czech koruna will be in the spotlight this week as their respective central banks make their interest rate decisions. The USD/CZK exchange rate was trading at 22.6, down over 5.23% from its highest point this year.
Similarly, the USD/HUF pair was at 355.55, which was also lower than this year’s high of 373.60 while the USD/SEK was trading at 10.2, lower than the May high of 11.
USD/CZK analysis
The Czech koruna has rebounded against the US dollar and the euro in the past few months even as the central bank embraced one of the most dovish monetary policy views in Europe.
It started cutting interest rates in its December meeting when it moved them from 7% to 6.75%. It has cut rates in all meetings since then, bringing them to 4.25%.
The bank embraced this dovish tone because of the relatively weak economy and the fact that inflation fell faster than expected.
Recently, however, there are signs that inflation has been stubborn in the past few months. Data by the statistics agency showed that the headline Consumer Price Index (CPI) rose 2.2% in August, higher the median estimate of 1.8%.
Therefore, the bank will likely leave interest rates unchanged in this meeting since the core inflation rose to 2.4%.
This interest rate decision will come a few days after last weekend’s regional election in the country where the ANO movement won in ten regions. This means that parties in the governing coalition will likely lose in next year’s parliamentary election.
Turning to the daily chart, the USD/CZK exchange rate peaked at 23.87 in April this year and then retreated to a low of 22.32 earlier this month. It formed a death cross pattern in August as the 200-day and 50-day moving averages crossed each other.
The pair has also formed a double-bottom chart pattern with a neckline of 22.80. Therefore, the USD to CZK exchange rate will likely continue rising as bulls target that resistance point. In the long term, more downside will be confirmed if it drops below the important support at 22.32.
Riksbank to cut rates again
Riksbank, the oldest central bank in the world, will also be in the spotlight on Thursday as it delivers its monetary policy decision.
Economists expect it to deliver the third interest rate cut of the year and hint towards more cuts for the remainder of the year.
These cuts come at a time when data shows Sweden’s inflation rate continued falling after peaking at 12.3% in 2021. The most recent report showed that the headline CPI fell to 1.9% in August, missing the expected estimate of 2.1%.
There are also signs that the Swedish economy has stabilised, which is a welcome move for the bank. In a note, analysts at ING wrote that:
“The Swedish krona has had a relatively calm month of September, with EUR/SEK trading mostly below 11.40. There are no strong indications that the pair should be trading higher, and given the rather explicit guidance by the Riksbank, markets are already fully pricing in three cuts by year-end.”
The USD/SEK exchange rate was trading at 10.20 on Tuesday morning, a few points below the key resistance point at 10.30, its lowest swing on July 12. Like the Czech koruna, it has also formed a death cross pattern.
Therefore, the pair will likely remain muted this week since the Riksbank rate cut has been priced in. More sell-off will be confirmed if it drops below the double-bottom level at 10.10.
Hungarian central bank decision
The National Bank of Hungary will also meet this week, and analysts expect it to continue with its strategic pause as it observes incoming economic data. Those at ING, however, see it slashing by 0.25%.
It has been one of the most dovish central banks as it slashed rates from 13% in 2023 to 6.75% in its bid to supercharge a slowing economy. The most recent data showed that the headline inflation retreated to 3.4% in August. In a note, ING analysts said:
“Our baseline scenario for the terminal rate in 2024 remains at 6.25%, implying another rate cut in the fourth quarter of this year. However, we would like to cautiously draw attention to downside risks and the possibility of a dovish shift.”
Technically, the USD/HUF pair formed a double-top chart pattern at 373.60 between April and June. This is one of the most bearish chart patterns in technical analysis, which explains why it retreated by 4.83% to the current 355.
The pair has also formed a death cross pattern. Therefore, it will likely remain in this range and then resume the downward trend as sellers target the next key support level at 351.23, its lowest point this month. A break below that level will point to more downside, with the next level to watch being at 350.
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