Commerzbank expects the Czech National Bank (CNB) to keep interest rates at 3.50%. It sees inflation risks rising due to higher energy prices linked to the war.
Domestic fuel costs have risen sharply, while wholesale natural gas prices are up. This creates upside risks for the inflation outlook, even as the CNB monitors second-round effects that are not yet visible.
Inflation Risks Rising
The growing chance of tighter policy has led to a base case of at least one 25 bp rate rise later in 2026. This expectation could change if the war situation improves and oil prices fall clearly within months.
Despite higher rate expectations, the Czech koruna has not strengthened further. Broader global risk aversion is reducing support for CZK and also weighing on the euro.
As a result, EUR/CZK is expected to trade sideways in the coming months, as these opposing forces offset each other. The article notes it was produced using an AI tool and reviewed by an editor.
The Czech National Bank is expected to maintain its current interest rate, but there is a growing risk of at least one rate hike later this year due to rising energy prices. This hawkish stance should theoretically strengthen the Czech Koruna. However, wider global risk aversion is currently preventing the currency from making any significant gains.
Sideways Market Outlook
Recent data supports this divided outlook, making the case for a sideways market more credible. We saw Czech inflation tick up to 3.1% in April, just above the central bank’s target, while the VIX volatility index has remained elevated around 22, reflecting persistent investor anxiety. This nervousness is fueled by concerns over European growth, especially after last week’s disappointing German factory orders.
We remember a similar dynamic in the third quarter of 2025 when the central bank also signaled a tightening bias amid geopolitical uncertainty. Risk appetite was low then too, and it trapped the EUR/CZK pair in a tight 24.60-24.85 range for nearly two months. The current environment feels very similar as these opposing forces balance each other out.
This suggests that selling volatility could be a viable strategy in the coming weeks. Traders might consider setting up an iron condor, selling an out-of-the-money call option and an out-of-the-money put option to define a trading range. The objective is to profit from time decay as long as the exchange rate remains stable.
