CE3 currencies: In line with their beta characteristic – Commerzbank

CE3 high-beta currencies usually outperform the Euro (EUR) (versus the US Dollar (USD)), which means that they strengthen against the Euro, Commerzbank’s FX strategist Tatha Ghose notes.

HUF is likely to underperform PLN

“The high-beta relationship is summarised by the two figures which show percent changes in EUR/PLN and EUR/HUF against percent changes in EUR/USD (the downward sloping lines represent that if the change in EUR/USD is positive, the change in EUR/HUF, for example, will be negative). The figures also show that currently, the exchange rates are very much in line with where they should be.”

“This means that if EUR were to peak out and USD were to make a comeback, there will be no major mis-alignment or mis-pricing, which PLN or HUF would first have to undo, before they could resume their usual beta relationship. Hence, we may assume that they will straightaway weaken from current levels due to a lower EUR, in line with their beta characteristic.”

“Also, HUF has a slightly greater beta than PLN (slightly steeper slope of the trendline), hence is likely to underperform PLN as their mutual rally reverses. This means that PLN/HUF will rise if EUR begins to weaken again. Such a view obviously is based on mechanical reaction characteristics to euro movements, not on specifically fundamental factors.”