Forex Investment and Currency Trading

Slovak koruna & regional currencies
After the market closed yesterday, the Slovak koruna was revalued with its ERM-2 band ceiling of 30.126 per euro becoming its new central parity – thus a 15% revaluation. The new ceiling was set at 25.607.

ECB statement today:

• “The revaluation of the central rate of the Slovak koruna is justified by ongoing improvements in underlying fundamentals.”
• “The revaluation is based on a firm commitment by the Slovak authorities to pursue appropriate supportive policies, aimed in particular at maintaining price stability in a sustainable manner, underpinning external competitiveness and strengthening economic resilience.”

The point to note is that the ECB had not been in favor of Slovakia’s adoption of the euro at the start of 2009, arguing that its favorable inflation performance was a temporary reaction to the strength of the koruna. Thus, once the euro was adoption, this benefit would no longer exist and inflation would rise. At the very least then, the above statements seem to suggest that the ECB has ‘come on board’.

The ceiling of 30.126 had come under pressure yesterday with an appreciation of the spot rate to an intra-day high of 30.535. Following the revaluation, the spot touched a peak of 30.07. The Slovak authorities stressed this morning that there has not been as yet any discussion about the planned conversion rate.

In terms of the other currencies in the region:

• No evident impact on the Czech koruna.
• However, a sharp appreciation of the Hungarian forint to a multi-year peak this morning of 240.55. Last week, it had reached a peak of 242.37, before slipping back to 244.63 by the close on May 23. Yesterday, it touched a peak of 242.89. The Finance Minister stated today that the forint’s appreciation was temporary and due to external factors; it is not justified by domestic factors.
• Sharp gain this morning in the Polish zloty. While it touched a multi-year high of 3.3721 per euro, the reality is that it remains in the same broad range of the last couple of weeks.

Other currencies of note

• Israeli shekel: Another new multi-year intra-day high today of 3.2600. This equals a U.S. dollar depreciation versus the shekel of 15.5% since the end of 2007.
• Mexican peso: Reuters shows an intra-day peak today of 10.3003. The peso had ended last year at 10.909.
• Philippine peso: The peso closed at a seven-month low today.