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Koruna to Near 2009 High as Economy Recovers, Komercni Says

July 27 (Bloomberg) -- The koruna will probably strengthen to near the highest level in 2009 against the euro as the Czech economy recovers and concerns ease that banks need more capital, boosting demand for riskier assets, Komercni Banka AS said.

The currency is poised to gain to around 25 versus the euro by the end of the week and “test the support area” of its 2009 and 2010 peaks, Komercni economist Jan Vejmelek in Prague wrote in an e-mail. The koruna climbed to 25.015 on April 15, the strongest intraday level since Sept. 17, 2009, of 24.983, according to data compiled by Bloomberg. The koruna may appreciate to around 24.5 in the next 12 months, according to Vejmelek wrote.

Czech business and consumer confidence jumped to a 22-month high in July on rising demand for the country’s exports, a government agency reported yesterday. Regulators said last week that most European banks passed tests assessing their capital strength.

“Supporting the koruna are both technical factors and a positive sentiment among foreign investors,” Vejmelek wrote. “Czech fundamentals remain favorable” and “stress tests in the European banking system did not produce any negative surprises,” he said.

Premier Petr Necas’s government has promised to cut its deficit to within the European Union limit of 3 percent of economic output by 2013 from the 2010 target of 5.3 percent. Meeting the goals could put “upward pressure” on the country’s A1 rating, Moody’s Investors Service analyst Dietmar Hornung said in an interview with Bloomberg News published on July 19. Necas took office this month after parties pledging to reduce the deficit won elections in May.

“The election result and a strong center-right government create a favorable environment for the adoption of structural reforms that would stop further growth of the country’s debt,” Vejmelek wrote.

To contact the reporter on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net.

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net.

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