As euro falls to parity with U.S. dollar, Czech crown is held steady by ČNB interventions
The major causes that have led the euro to such a depreciation are related to the energy crisis and generally increasing risk aversion in financial markets. Markets have also collapsed because of further tightening by the central bank and concerns about the health of world economies. The Ukraine war is also one of the reasons: the closer you are geographically to the center of the conflict (thus, Europe much more than the United States), the more your economy suffers because of stronger trade and financial links. The energy crisis is affecting European industrial countries that are heavily dependent on gas imports. In contrast, the United States are in a more favorable position because they are not dependent on Russian oil or gas.
As for the Czech crown, the Czech National Bank (ČNB) has kept the currency exchange rate stable through foreign exchange interventions. This is because from a continued weakening of the euro follows a weakening of the koruna, and without interventions it would be even worse.
While at the same time, it is not clear yet whether the ČNB will raise interest rates further. Despite the ČNB’s large foreign exchange reserves, the bank may not be able to sustain foreign exchange interventions for long time. The market knows that with each such intervention, the CNB loses some of its foreign exchange resources, thus losing the assets to improve the currency exchange rate.
New Czech Central Bank Governor Aleš Michl has assured that he will not raise interest rates any further. By doing so, he reassured the market from the fear that inflation will not be sufficiently restrained. Martin Kysela, ČNB analyst, says there will be no drastic changes in the exchange rate of the euro against the crown in the near future. However, some economists believe it is worth converting money now, before the European Central Bank makes declarations about raising interest rates.
Source: https://www.expats.cz/
Source of images: https://www.fxempire.com ; https://storyset.com/
