Because of the deterioration in the eurozone, currencies in Central and Eastern Europe are likely to suffer, but there are some buying opportunities, analysts say.
Eurozone manufacturing fell in April, with export orders down and Germany’s PMI sliding below the 50 level that separates contraction from expansion for the first time since last October.
There are further signs of a slowdown in Germany, with the IFO business confidence index falling to 104.4 in April from March’s 106.7 and below expectations of 106.2.
“We are now tactically bearish on Central European foreign exchange, reflecting poor macro data in the eurozone, and the risk of some financial stress resurfacing in Europe,” Benoit Anne, head of emerging markets strategy at Societe Generale, wrote in a market note.
The fact that “even Germany is now affected by the prevailing gloom” in the eurozone “does not spell good news for the macro-economic performance in Central Europe,” he added.
Anne said the euro was at this point “subject to correction risks,” and it may drag currencies in CEE lower.
Anne recommended going short the Polish zloty (PLN) against the euro (EUR) with a target of 4.20 and also short the Hungarian forint (HUF) versus the euro, with a target of 306.80.
Currencies in smaller markets, namely the Romanian leu (RON) and Serbian dinar (RSD), are his top picks in the region now.