CEE Currencies Forecast for the first quarter of 2024

 The Czech crown and Polish zloty are expected to take the lead in currency appreciation in the CEE region in 2024, as the pace of interest rate cuts is anticipated to be slower than initially predicted.

iBanFirst predicts a downward trajectory for the EUR/USD exchange rate in the first quarter, reaching 1.05. This forecast is shaped by the strength of the US economy and the fragility of the European economy.

Analysts expect the cycle of interest rate cuts to begin in major developed economies. This could lead to a volatility return in the currency markets, exposing regional SMEs to increased costs and business uncertainty.  

Europe, January 09th, 2024: As we enter 2024, economic dynamics are shaping fresh trends in the forex market, presenting traders with a mix of opportunities and challenges.

In an effort to assist regional trade companies in streamlining their budget forecasting, iBanFirst, a leading global provider of foreign exchange and international payments for businesses, present in 10 European countries, provides a CEE Currencies Forecast for the First Quarter of 2024.

Key events that will impact the foreign exchange market in Q1 2024:

●       Monetary Policies Loosening: Following the period of monetary policies tightening, analysts expect the cycle of interest rate cuts to begin in major developed economies. As central banks embark on this shift, iBanFirst foresees a return of volatility in the currency markets.

●       Economic slowdown in Europe: There are concerns that Europe might be on the brink of a recession, triggered by slowing growth of its main economies, Germany, and France. In contrast, the US economy is surpassing expectations, leading to the strengthening of the dollar and depreciation of the euro.

●       Disinflation trend in the Eurozone: Encouragingly, inflation in the Eurozone is showing a more substantial decline than initially predicted. The European Central Bank (ECB) has adjusted its inflation projection for 2024, reducing it from 3.2% to 2.7%.

`As we step into 2024, currency volatility is set to make a comeback, affecting regional companies engaged in trade, regardless of their size. Even a small shift in exchange rates can significantly impact a business's profit margin, influencing its competitiveness in international markets. In this unpredictable scenario, import-export companies based in the CEE region should proactively address currency fluctuations. This involves regularly monitoring currency markets to stay informed about the latest trends and implementing a tailored currency risk management plan with the help of a risk management specialist`, says Johan Gabriels, Regional Director for South-East Europe at iBanFirst.

EUR/USD forecast for Q1 2024

iBanFirst analysts predict a downward trajectory for the euro/dollar exchange rate in the first quarter, reaching 1.05. This forecast is shaped by the strength of the US economy and the fragility of the European economy.

Europe's challenges stem from a mix of factors: a delayed post-COVID economic recovery, an ongoing energy crisis, declining exports, and the overly restrictive monetary policy in a context of high debt. While Europe faces the risk of recession, the US economy continues to outperform expectations, driven by resilient domestic consumption and a thriving housing market. The Federal Reserve's decision to pause its monetary policy has maintained attractive real yields in the US, and analysts anticipate the first interest rate cut by the Fed in Q1 2024. The global economic downturn further strengthens the dollar's value as a safe-haven currency during times of uncertainty.

EUR/PLN forecast for Q1 2024

In 2023, Poland's zloty emerged as the frontrunner in the region, registering an almost 8% increase against the euro. Most of these gains occurred following a decisive victory by a broad coalition of pro-European Union parties in the October elections. Analysts anticipate that the Polish zloty will continue its upward trajectory, projecting a 1.11% increase by the end of the first trimester, reaching 4.38 zloty against the euro.

The currency's resilience is supported by two key factors. Firstly, the Polish central bank halted its interest rate-cutting cycle in the final months of 2023, and analysts expect it to remain on hold throughout the first half of 2024. Secondly, the anticipated inflow of EU funds is expected to attract investors, with Warsaw projected to receive around 18.5 billion euros in 2024.

EUR/CZK forecast for Q1 2024

For the Czech crown, analysts predict a 0.79% increase to 24.67 against the euro by the end of the first quarter. The currency's value dropped to its lowest point in a year and a half by the end of 2023, following the decision of the Czech National Bank to reduce interest rates, a move that aligned with similar actions taken by Hungary and Poland. Following this event, the bank remains cautious about further easing policy.

The appreciation of the crown will be supported by slow interest rate cuts and a steady economic recovery. After an estimated stagnation in 2023, economic activity in Czechia is anticipated to gradually pick up pace, reaching 1.4% growth in 2024.

EUR/HUF forecast for Q1 2024

iBanFirst anticipates Hungary’s monetary policy to have little influence on the EUR/HUF in the short term. Analysts expect the Forint (HUF) to trade at 375 against the euro in the first quarter of this year. The policy rate is at an optimal level to guarantee that inflation will return to its target level in the medium term. In terms of counter-cyclical measures, further cuts to the required reserves rate are expected, which will increase the volume of liquidity. Hungary's real GDP growth in 2023 was negative by 1.3%. This is significantly worse than the initial forecast of 0.7% growth.

EUR/RON forecast for Q1 2024

iBanFirst predicts a slight depreciation trend for the Romanian leu (RON) amid weak growth in the local economy. Analysts expect the Romanian leu to trade at 4.99 against the euro in the first quarter of this year. The country’s economic slowdown is caused by challenges in the services and industrial sectors, weakening activity in the euro area, and fiscal consolidation measures. Romania's real GDP growth in 2023 is around 2%, below the initial forecast.

Moreover, the annual inflation rate is expected to rise at the beginning of this year, influenced by the recent fiscal and budgetary measures. All these domestic factors, combined with the overall state of the European economy and the conflict in Ukraine, affect the growth prospects and the Romanian currency. On the other hand, the National Bank of Romania stands out in the region as the least tolerant to currency volatility and has not allowed a significant depreciation of the leu.

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