The GBP/USD exchange rate remained under notable selling pressure, dipping below 1.2450 in the early European session on Monday. Concurrently, the EUR/USD pair edged lower to approximately 1.0450, influenced by growing expectations of a European Central Bank (ECB) rate cut. These currency movements come ahead of significant economic developments, including Fitch's review of Serbia's rating set for Friday post-market hours, and the release of GDP data from Hungary, Poland, Czechia, and Serbia, providing insights into their 2024 economic performance.
In Central and Eastern Europe (CEE), government bond yields experienced a decline last week, coinciding with a slight weakening of the US dollar. The EURHUF fell below 410, while the EURPLN reached a five-year low at 4.21. This strengthening of CEE currencies against the euro reflects an evolving economic landscape. Notably, the Polish zloty is anticipated to maintain strength due to the central bank's hawkish stance and the expected delay of interest rate cuts until after March 2025.
Upcoming economic indicators are poised to further define the region’s economic trajectory. December's unemployment rates in Poland and Romania will be crucial data points, alongside producer prices in Slovakia and Hungary. These announcements will provide a clearer picture of the labor market and inflationary pressures within these economies.
Meanwhile, the Euro's downward trajectory is exacerbated by ECB rate cut expectations, which are undermining the currency ahead of Germany’s IFO survey results. In response to these dynamics, Poland and Hungary plan to offer various T-bonds in their regular auctions, while Serbia schedules its next RSD auction for March.
In Hungary, the central bank is expected to maintain the current interest rates this week, as part of its monetary policy strategy. The decision will be scrutinized as it comes amid broader regional economic assessments and external financial pressures.
Market sentiment around cryptocurrencies also saw notable shifts, with PEPE's long-to-short ratio trading below one. This indicates a bearish outlook among traders for the frog-based meme coin. Additionally, expectations of Federal Reserve rate cuts coupled with declining US bond yields could potentially limit any upward movement in the US dollar.