Czech crown weakens to near 11 year low against US dollar
The Czech crown has slumped to more than 10 year lows against the US dollar and the impact could go a lot wider than just two way trade with the world’s biggest economy with the ripples reaching Asia and Latin America.
And for some currencies, especially those of small export oriented Central European countries, the saying could be changed a bit to read it’s not what you are but who you’re linked with. So when the crown plunged Wednesday to a near 11-year low of around 26 crowns against the US dollar the main cause could be seen in the Czech currency’s links with the euro.
To put it bluntly, the Czech crown has been dragged down alongside the euro during the single European currency’s recent plunge to near parity against the dollar. The euro has lost around 17% of its value against the dollar since the start of the year and the crown has not been that far behind with a 13.8% decline.
Although the Czech Republic is clearly outside the Eurozone, Germany and its weaker euro associates still accounts for the overwhelming amount of Czech bilateral trade and while the crown is not explicitly pegged to the euro, the Czech National Bank’s low crown policy and target rate of 27 crowns or lower against the euro means that the Czech central bank is taking its lead from euro developments.
Foreign holidays might also be more expensive as well, aviation fuel is also priced in dollars. Some Czech companies with a substantial proportion of their revenues in dollars, such as the Czech based global software security and anti-virus company Avast or CME, the commercial television group which owns Czech broadcaster TV Nova, will suffer as result. Most Czech companies will not benefit that much directly from a weak dollar, Czech trade with the US is surprisingly small given the fact that it is still the world’s biggest economy.
Era bank economist Jan Bureš pointed out some other possible impacts: “I believe that looking at inflation it should have only a minor impact in the fields such as information technology imports, IT equipment, parts for electronic equipment can be influenced as well, but it should not have a major impact on the import prices.
Bureš says the worst damage to the crown has already been done but he does not expect the strong dollar to weaken any time soon. The euro and crown are suffering because weak currency policies are being pursued while across the Atlantic they are coming to an end and interest rates are expected to rise.
