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Czech Koruna Snaps Four-Day Retreat on Spanish Bailout Optimism

The koruna gained after four days of losses as a report said European officials are discussing a Spanish bailout, increasing appetite for riskier assets.

The Czech currency strengthened 0.3 percent to 24.848 per euro by 5:46 p.m. in Prague. The advance pared the koruna’s losses this week to 2 percent, the worst among major emerging-market peers tracked by Bloomberg, followed by a 1.7 percent drop for Poland’s zloty.

Stocks and commodities climbed and most developing-nation currencies appreciated on speculation this week’s declines were overdone as central banks from the U.S. to Japan added stimulus. The Financial Times reported Spanish and European Union officials are working on plans to trigger the European Central Bank’s unlimited and sterilized bond purchases.

“The koruna is benefiting from a fairly positive market mood and the fact that, compared with Poland, the Czech National Bank doesn’t have that much space for rate cuts,” David Sykora, the chief currency trader at CSOB AS in Prague, said in e-mailed comments today.

Traders in money markets expect the CNB, which cut its main interest rate to a record-low 0.5 percent in June, to lower the benchmark by at least another quarter point, based on nine-month forward-rate agreements, or FRAs, trading 35 basis points below the Prague interbank offered rate. Polish FRAs of same maturity are trading 100 basis points, or 1 percentage point, below the Warsaw interbank rate, showing expectations for rate reductions to 3.75 percent from 4.75 percent by June next year.

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