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Financial markets are responding to the latest developments in the geopolitical situation in Ukraine
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The Czech koruna weakened against major world currencies on Thursday
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Its exchange rate against the euro climbed above 25 crowns. In the case of the dollar, it was just below 22.5 CZK / USD
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Which direction the koruna will traditionally take as the riskier currency in the coming days depends on the further development of the Ukrainian crisis
The escalation of the conflict in Ukraine, which turned into a full-fledged war on Thursday morning due to the continuing Russian aggression, is naturally reflected in the situation on world financial markets. As a result, the price of Brent North Sea crude exceeded the important psychological threshold of $ 100 per barrel during the day and continues to rise sharply. At the time of writing this article sold even three dollars more expensive. It is probably only a matter of time before pumpers react to this development – a few days ago, some analysts said that fuel prices in the Czech Republic could jump up to the level of 40 crowns per liter.
But it is also busy in other places. The Prague Stock Exchange lost more than four percent by noon at the end of last trading day on Thursday, falling the lowest since last November. The value of the PX index according to CTK is around 1346 points.
The crown is also falling. The exchange rate of the Czech currency against the euro broke the mark of 25 crowns shortly after lunch, which is its highest value since the beginning of this year, notes Miroslav Novák, an analyst at Akcenta, which has specialized in foreign exchange trading for more than 20 years. According to him, the further development of its exchange rate against major world currencies, which include the US dollar in addition to the euro, may have two different scenarios.
“The closest development around Ukraine will be absolutely crucial for the koruna, or whether the situation will escalate further, what sanctions will be imposed on Russia by the EU and the USA, and what reciprocal measures will be by Russia,” says Novák. He now considers the possibility of a long-announced cut-off of Moscow from the international banking system SWIFT to be “relatively probable”. It could react to it “in an extreme case” by stopping the supply of natural gas to the countries of the Union.
“From the point of view of the further development of the koruna against the euro, the technical band in the range of 25.0 to 25.2 CZK / EUR is currently very important. If the situation around Ukraine starts to escalate in the coming days, the weakening of the koruna should be limited by this band, “the analyst thinks.
If this does not happen and, on the contrary, the conflict escalates further, it is necessary to reckon with the fact that the mentioned decline will be a bit bigger. “In this case, trading would move to 25.20 – 25.80 CZK / EUR,” he estimates.
Novák does not think that the euro or the dollar would become even more expensive for the Czechs – for example, as in the two-year period back, when the koruna weakened to a value well above 27.5 CZK / EUR and 25.5 CZK / USD, respectively, due to the outbreak. In any case, in his opinion, it cannot be completely ruled out: “At the moment, in my opinion, the koruna is not likely to weaken as extremely as in March 2020. However, the situation may change, of course.”
Other Central European currencies are also weakening
The Czech koruna is not the only currency in the region that is weakening significantly as a result of Thursday’s events in Ukraine. A similar trend can also be seen in those foreign exchange markets where the Hungarian forint or Polish zloty are traded – even these Central European currencies are gradually losing ground. Why is that so?
“In general, when risk aversion rises in the financial markets – for whatever reason – investors move to so-called safe assets, which in the foreign exchange market is, for example, the Japanese yen, the Swiss franc or the US dollar, and vice versa. they are leaving the less secure currencies, such as the Czech koruna, the forint or the zloty. All three Central European currencies are now weakening de facto synchronously, both against the euro and the dollar, ”explains the economist.
“The situation is further exacerbated by the fact that from Central Europe it is very close to the borders of Ukraine, and therefore Russia. That is why the koruna, the forint and the zloty are even more sensitive to the current geopolitical situation than, for example, the currencies of countries in Latin America, whose economies can also be described as developing, ”concludes Novák.
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