We interrupt this Greece-watching-Federal-Reserve-worrying-finger-nail-biting market dynamic to bring another matter to your attention. One of the other nations closely related to the European Monetary Union -- which has a currency pegged to the euro -- is making waves by potentially indicating that changes will be made that would banish that peg to the annals of history. Of course, as you have likely figured out already, I am talking about the Czech Koruna and its established floor to the euro at 27.00. Since the Swiss National Bank brought the practice of peg pulling, and the risks associated with it, to light, we have been keeping our eye on this pair on the off chance it might happen again.
While the original article indicated that the change may come from the Czech National Bank during their February 5 meeting, that didn’t come to fruition. In fact, they remained as steadfast as ever in defense of their floor, however, those who made that decision may not be at liberty to do so in the near future. A longtime opponent of the floor, Czech Republic President Milos Zeman, said today that he would be appointing someone to head the bank whom was more in line with his beliefs on the subject when that time comes. The only problem is that the appointment won’t be coming until July 2016.
Regardless of the timetable of the changing of the guard at the CNB, Zeman’s public pronouncement could influence the voting practices of those currently on the board; which means the floor may be in jeopardy. Adding to the intrigue is the potential of a Grexit, which could severely weaken the euro and overwhelm the CNB if the EUR/CZK falls to 27.00. If the SNB didn’t feel it had the resources to fight a euro decline, is it really logical for the CNB to believe that they do? We may soon find out as the EUR/CZK has fallen over 400 pips today and was under 200 pips away from the floor during North American trade.
Souce: www.forex.com
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