The Czech currency, the koruna, continues its extraordinary strengthening trend this year after experiencing a sharp upswing in March. It has repeatedly improved its fifteen-year-old record against the euro, trading at around 23.50 per euro on Friday, with the dollar standing at over 21.40 Kč. According to analysts, the Koruna may continue strengthening.
Jan Vejmělek, the chief economist of Komerční banka, stated that hawkish rhetoric from central bankers has been increasing lately. However, this does not change their unwillingness to raise interest rates. According to him, the Czech National Bank prefers to use a strong exchange rate to dampen inflation, and the koruna may thus continue to strengthen slightly.
A strong currency can lower the costs of imported goods and vacation expenses. Therefore, it is an excellent time to exchange money for summer trips. However, according to economists, unexpected events could weaken the koruna, and a weaker exchange rate in the second half of the year is almost inevitable.
The most significant price reductions are likely in imported goods purchased from abroad. In the Internet era, ordering products from overseas is no longer a problem. By paying in euros, customers can immediately benefit from strengthening the koruna without waiting for domestic competitors to lower the prices of imported goods. A strong koruna currently helps reduce energy costs or flights from foreign firms, and it is now fashionable to buy groceries from abroad.
According to Petr Bartoň, an economist at Natland, the koruna should have weakened slightly by this time, at least according to the Czech National Bank’s January outlook. However, events in the United States and the eurozone have worsened the outlook for rate hikes there, and the Czech National Bank continues to announce that investors should not expect an early rate cut. These are the three main factors behind the koruna’s strengthening, which could continue for another month or two, and a breakthrough of the 23 korun mark per euro is possible, Bartoň believes.
If the positive sentiment on the markets continues, the koruna may strengthen further in the second half of April. Analyst Miroslav Novák from Akcenta reminded us that even the historic record high of 22.90 korun per euro in 2008 is not far off. He also noted that the Czech currency is susceptible to changes in market sentiment, and a return of nervousness would lead to a sharp decline in the koruna’s value.