Middle East tensions weigh on local currencies, Central and Eastern European currencies await US inflation guidance

(1) On Wednesday, Central and Eastern European currencies were overall steady against the euro as the market remained cautious ahead of the US inflation data release, while closely monitoring oil price movements and the latest developments in the Middle East geopolitical situation. (2) Oil prices edged higher after both the US and Yemen's Houthi forces reported shipping attack incidents on Tuesday. Iran reiterated that the Strait of Hormuz would stay closed unless the US accepted its terms. If the Middle East conflict escalates further, simultaneous strengthening of both the US dollar and oil prices will put double pressure on emerging market currencies. (3) The Polish zloty fell slightly by about 0.05% to 4.3030 per euro, the Czech koruna was flat, and the Hungarian forint rebounded approximately 0.15% to 364.70 per euro, partially recovering losses from earlier in the week caused by rising oil prices. The forint is particularly sensitive to changes in global energy prices due to Hungary's high dependence on energy imports. (4) Romania’s annualized inflation rate for July dropped from 10.42% in June to about 8.16%, a decline less than expected. Institutions noted that the decrease mainly reflects base effects, with no significant slowdown in month-on-month momentum. Inflation is expected to continue falling, but the central bank is unlikely to cut rates before early 2027. Romania’s benchmark interest rate was maintained at around 6.5% on Monday, the highest level in the European Union. (5) The Romanian leu slipped about 0.04% to 5.24 per euro, with the market having largely priced in the central bank’s hawkish stance, and exchange rate volatility now being driven more by external factors. (6) Overall, the Middle East situation and oil price trends remain the key drivers of short-term risk appetite for currencies in the region, while US inflation data tonight will determine the direction of the dollar, further affecting the short-term breakout direction of Central and Eastern European currencies against the euro.