The crown is bouncing back. On Thursday it added more than 1% to CZK 26.42 per euro, its highest since the middle of April. Still nine days ago, the euro cost CZK 27. The Czech currency is also doing well against the US dollar again – it strengthened beyond CZK 19 to CZK18.89 per dollar.
The future of the crown’s exchange rate is far from clear, though. Several times in the past the unit retreated from CZK 26.35 per euro, and some analysts say the crown simply cannot achieve more now.
“The crown posted the sharpest growth just before the closing bell. Several big players entered the market who started to sell euros and bought crowns. Probably some pre-set orders were launched,” Miroslav Frayer of Komerční banka described what the situation looked like on the market on Thursday.
Analysts therefore do not expect the crown to post further gains.
However, the situation is completely different on the crown-dollar market. The US currency is under pressure and is starting to lose heavily to the euro. On Thursday, the dollar fell through USD 1.4/EUR after some time, and that benefits the Czech crown.
What pushes the dollar down now is the rising crude oil prices, apart from traditional factors like the growing debt of the United States.
US light crude sold at USD 71 per barrel on Thursday, 12 dollars higher than a month ago. Stephen Jen, a monetary market expert at British investment company Bluegold Capital Management, said the rising oil prices and the weakening dollar resembled the situation that came last year when crude oil jumped up to 150 dollars per barrel while the dollar fell sharply.
Growing oil prices not only increase the USA’s debt, but also prevent central banks outside the USA from resorting to major rate cuts. The United States, by contrast, has almost zero interest rates already.
And the rule is that the higher interest rates a country has, the more advantageous it is to invest there and therefore to buy the local currency.
Moreover, members of the oil cartel OPEC, who benefit from the growth in oil prices, import twice as much goods from Europe as from the United States. Economic recovery in these countries is thus fueling the euro’s gains.
The decision on the dollar’s future will be taken at the US central bank Fed meeting on Wednesday. The Fed is not expected to raise interest rates, but it could suggest it would do so in future. And that would help the dollar a lot. The investment bank Nomura therefore recommends to sell dollars and buy euros prior to the Fed meeting.
According to Nomura, the dollar might fall as low as USD 1.5 per euro. As a result, the Czech currency – if it remains more or less stable against the euro – would strengthen to as high as CZK 17.8 to the dollar. “The dollar will lose in the near future. It is still too strong now,” Nomura analysts said.
