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Deflation Risk Renders Koruna’s Euro Cap Irrelevant

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Currency traders are taking aim at the Czech Republic amid speculation that policy makers will have little choice but to weaken the koruna as it seeks to avert deflation.

A measure of volatility jumped this month by the most among 31 major peers as the koruna fell to a six-year low of 28.5 per euro. The exchange rate is so far away from the 27-per-euro cap imposed by the central bank more than a year ago when inflation was the bigger threat that Goldman Sachs Group Inc. says it’s now “odds on” that the ceiling gets adjusted to 30 per euro.