The recovery of stock markets has also helped to stabilise CEE currencies. They continued to rise against the US dollar in line with the euro, with the Polish zloty (PLN) standing out in particular, rising more sharply against the US dollar than the euro. The Czech koruna has also shown strength in recent weeks, with the Hungarian forint remaining stable at 400 EUR/HUF.
Despite the war between Israel and Iran, I see no reason why CEE currencies should depreciate in the short term. However, this cannot be ruled out for various reasons in the case of the PLN and HUF in the autumn. I am confident that the krone will continue to rise moderately until the end of the year.
The economy in the CEE countries is improving. Whether this continues to be the case will largely depend on whether the USA exercises more restraint with its tariffs than I currently anticipate. This, in turn, depends on whether the war in the Middle East escalates or remains limited.
Strengthen the Hedge When in Doubt
Interest rate differentials against the PLN and HUF are high again today, making them painful. However, I believe that hedging should not be abandoned given the high overall risk situation. The Israelis want to prevent Iran from posing a threat to Israel in the long term. They have Donald Trump’s support, even though he himself does not want to be associated with wars. Without the USA’s support, Israel will never achieve its goals. It remains to be seen how irrationally Iran will proceed, given that it ultimately has no chance of success. If there were to be any kind of significant escalation, the reaction would put a heavy burden on the stock markets as a risk-off measure, which would also put CEE currencies on the sell list.
An Escalation Would Also Have Consequences for Turkey
It is striking how strongly Turkey is urging Israel to stop the fighting. Turkey borders Iran and is therefore indirectly affected. An expansion of the conflict involving the USA could possibly lead to a NATO attack, which is unlikely today but would involve Turkey directly in the conflict. If the conflict in Iran remains territorially limited, however, I see good opportunities for Turkey to consolidate its position. However, rising energy prices could impact this, as is the case everywhere. Overall, though, the chances of Turkey finally moving its economy forward again after seven years of inflation are good.
Russia is Over the Moon – And by More Than One Measure
Iran’s conflict with Israel is creating additional income for Russia because it is pushing up oil prices. As long as the West is unable to agree on how to punish third countries for buying energy from Russia — and there is little prospect of success — Russia will continue to receive foreign currency.
Nevertheless, after almost three and a half years and the Russian army’s countless successes, it is highly unlikely that the war will continue for so long. Russia is growing weary of the increasing bloodshed. With Trump, there is a chance that a forced peace with Ukraine could be achieved, which would at least preserve the territory in eastern Ukraine and, in any case, Crimea. Either way, Trump would pressure Zelensky to permanently relinquish Crimea. However, achieving final peace between the warring parties will certainly be difficult.
