Central Europe's currencies wobbled on Tuesday as a global tech-led selloff and a firm US dollar outweighed hawkish signals from regional central banks. Poland's zloty slipped to 4.3975 per euro, according to Reuters, as investors retreated from riskier assets.
What's driving the move?
The immediate trigger was a drop in technology shares, fueled by worries that massive spending on artificial intelligence may not deliver the expected returns. That concern has rippled through global markets, hitting tech stocks from Asia to Europe and the US. As European stocks slid and safe-haven demand pushed government bond yields lower, investors pulled back from currencies that are considered higher-risk.
Central and Eastern European (CEE) currencies like the zloty and the Czech crown are often treated as "carry" trades—investors borrow in low-yielding currencies like the euro or dollar and invest in higher-yielding ones here. When risk appetite fades, those trades get unwound quickly, and the currencies lose support.
At the same time, the US dollar strengthened as investors sought safety. A firmer dollar typically puts additional pressure on emerging-market currencies, including those in Central Europe.
Central banks push back, but markets aren't convinced
Local central banks tried to counter the trend with hawkish rhetoric. ING, a Dutch bank, noted that the National Bank of Poland is sounding more hawkish—likely signaling that interest rates could stay higher for longer to combat inflation. However, ING still expects the euro to trade around 4.400-4.410 zloty in the near term, suggesting that global factors are doing the heavy lifting.
In the Czech Republic, the central bank delivered a narrow 4-3 vote to raise interest rates. But officials signaled that this was not the start of a long tightening cycle. In fact, ING noted that Czech market interest rates fell by more than 30 basis points over the past week, indicating that traders believe peak rates may be closer than the headline hike implies.
This disconnect between central bank signals and market expectations is a key theme. As Poland's central bank has lifted its inflation forecast due to higher energy costs, the case for higher rates is clear. But if investors think those hikes are near their end, the currency doesn't get the usual boost.
What it means for investors
For everyday investors, the takeaway is that currency moves in Central Europe are increasingly driven by global forces rather than local policy. A central bank can hike rates and still see its currency soften if traders believe that hike is close to the end of the cycle.
That matters because carry trades rely on the interest-rate gap between countries. When local market rates fall, that cushion shrinks, and the zloty or Czech crown has less to offset a global wobble. Add a firmer dollar during a tech-led risk-off session, and some investors unwind those trades, swapping back into dollars and cutting exposure to higher-beta currencies.
The result is that pairs like EUR/PLN can stick near levels that banks like ING flag, while EUR/CZK becomes more sensitive to what global rates and the dollar are doing than to a single policy meeting.
For investors with exposure to these currencies—whether through direct holdings, ETFs, or multinational companies operating in the region—it's worth watching global tech sentiment and the dollar's direction as much as local central bank decisions. The AI selloff has driven safe-haven currencies like the yen and franc higher, while the dollar holds steady, and that dynamic is likely to keep pressuring CEE currencies until risk appetite recovers.
As Bund yields hit a three-month low on safe-haven demand, the broader risk-off mood is clear. Until that shifts, Central Europe's currencies may remain under pressure, regardless of what local central banks say.
