The Czech koruna continues to strengthen against the euro, with the exchange rate settling below CZK 23.8 per euro on Wednesday and remaining there on Thursday morning. This marks the strongest position of the Czech currency against the European one since July 2008. According to Jakub Seidler, chief economist at the Czech Banking Association (CBA), the koruna may still strengthen further, but it is expected to return above CZK 24.5 per euro in the near future.

There are several factors contributing to the appreciation of the Czech koruna. Seidler notes that global sentiment turned around at the end of last year, and investors began returning to the Central and Eastern European region. The Czech National Bank (CNB) intervened in the market from May to October to the tune of around CZK 650 billion, which also played a role in the koruna’s strengthening. Additionally, the interest rate differential against the euro has been positive for the exchange rate, despite gradually decreasing as the European Central Bank raises interest rates. Lastly, the domestic economy is performing better than others, further increasing interest in the koruna from foreign investors.

Despite the continued strength of the koruna, some experts predict it will give back some of its gains in the near future. Lukáš Kovanda, chief economist at Trinity Bank, expects the koruna to be at CZK 24.20 against the euro by the end of March and CZK 24.35 by the end of June, according to the analytical consensus captured by Bloomberg. By the end of the year, the euro is expected to be worth CZK 24.50.

Overall, the koruna’s strength is expected to continue in the short-term but may see some fluctuation in the long-term. The CBA’s Seidler predicts that the koruna will remain strong for extended periods but does not expect it to fall below CZK 23.5.
Article by Prague Forum