Hungary-EU tensions cool, Czech currency valuation

Hungary dropped its veto against the EU's financing package for Ukraine on Thursday, ending a week of uncertainty that added downside risks to the currency. Provided the easing in tensions is maintained, there's a good chance that the central bank will step up its easing cycle with a 100bp interest rate cut later this month. Elsewhere, the IMF's argument in its latest article IV report that the Czech currency is "broadly in line with fundamentals" stands in contrast with our view that it remains overvalued. We still think that it will weaken further over the course of the year.