The recent outperformance of the Polish zloty, Czech koruna and Hungarian forint reflects the impact of domestic monetary policy and eurozone risk conditions on these currencies.
“CE3 FX is more sensitive to the euro and to eurozone rates and less sensitive than other emerging-market FX to the kind of broader currency moves and readjustment in US Federal Reserve easing expectations that impacted markets in August, for example,” says Nicholas Rees, senior FX market analyst at Monex.
Within that group of currencies, the forint is known for its higher volatility compared with the zloty and koruna. During periods of global financial stress – such as the unwinding of yen carry trades – currencies with higher perceived risk tend to experience more dramatic sell-offs.
“Hungary's economy and currency are more sensitive to shifts in global investor sentiment since the country has a smaller economic base compared to Poland and relies heavily on external funding and exports,” explains VT Markets senior market analyst, Apac, Justin Khoo.
During the yen carry trade unwind, this sensitivity translated into big outflows as global risk aversion increased.
Early fall
David Morrison, senior market analyst at Trade Nation, notes that most of the carry trade unwind came in the first four months of the year, during which time the forint fell 9% against the dollar, the zloty lost 6%, the koruna fell 7% and the Romanian leu declined 5%.
Hungary’s
