A number of Eastern European countries are EU members without belonging to the euro zone. That makes their national currencies interesting for the financial markets. Reason enough to think outside the box.

Eastern European banknotes

OThe importance of Eastern Europe for the German economy is often underestimated. In the Corona year 2020, Poland was the fourth largest trading partner with a trade volume of 123 billion euros. With the “CE3” countries Poland, Hungary and the Czech Republic, German companies transacted business worth over 258 billion euros, more than with the front-runner China (213 billion euros).

The close ties with the neighbors in the east directs attention to their currencies: the states are in the EU, but not in the euro area. Traders therefore keep an eye on the foreign exchange market. They may not have liked everything that they recently observed there. In March, the Polish zloty marked its lowest level since 2009 at 4.66 zloty per euro. In Hungary, where the central bank also pursues a policy of cheap money, the forint had reached highs of 368 forint per euro in March. The times seem over now.

The zloty and forint have recently strengthened again. On Thursday the euro costs 4.55 zlotys and 359 forints. Experts give several reasons for this. “The partial weakness of the American dollar favors emerging market currencies that are pegged to the euro,” says Gunter Deuber, Head of Economic Analysis at Raiffeisenbank International.

The global tailwind will also benefit currencies in East Central Europe that had appreciated against the euro in the first weeks of April. The global economic recovery in the industrial sector is also favoring economies that are open to trade and strong in industry, because the demand for currencies is growing there.

Sandra Striffler from DZ Bank sees the firmer exchange rates – the Czech crown was again trading below 26 crowns per euro – as an expression of generally growing economic confidence. “We assume that the corona pandemic in the E (W) U as well as in the small CE-3 states will begin to lose its fright, at least from an economic point of view, from the current quarter.” According to a new analysis by Viennese Eastern Europe think tanks WIIW are likely to connect most of the countries of Eastern Central Europe to the pre-Corona economic level this year. The speed of vaccination is decisive.

The high vaccination rate in Hungary, where Chinese and Russian vaccines are used, may have helped to ease the depreciation pressure on the forint. The central banks in East Central Europe had also calmed the markets. The Polish national bank has weakened its preference for a weaker zloty and the Hungarian national bank has signaled its willingness to act if inflation trends should make it necessary, says Deuber.

In addition, the central bank in Romania ended its cycle of interest rate cuts earlier, which supports the Leu, which has recently been under devaluation pressure. The fact that it came under pressure again in the middle of the week with rates above 4.92 leu per euro was also indirectly due to Corona: The government in Bucharest plunged into its first crisis after the dismissal of the health minister.