Czech crown continues impressive run

Czechia’s national currency recently hit a 15-year high against the euro. What does this mean if you’re traveling outside of Czechia in Europe?

The Czech crown – in recent months surging in value against the euro – could yet strengthen further, Novinky. Cz quotes analysts as saying. This is good news for people spending crowns abroad, as the national currency’s purchasing power continues to strengthen in many European countries.

Consistent, strong progress

When writing, the crown trades at about EUR 1: CZK 23.4, recently hitting a 15-year high against the European currency. In contrast, last year, the crown was valued at CZK 24.4 for EUR 1.

In 2022, the crown strengthened by 3 percent against the euro, making it the best-performing currency in the Central and Eastern European region. Between 2019 and 2022, the Czech currency appreciated 5.4 percent, performing much better than other European currencies.

The crown is also doing well against the U.S. dollar (at about USD 1: CZK 21.3

This strong progress against both major currencies may well continue.

Actions by the Czech National Bank (CNB) have greatly helped keep the crown strong. According to analysts, the strong exchange rate helps the CNB fight inflation. In 2022, the CNB artificially used CZK 700 billion from foreign-exchange reserves to strengthen the national currency.

Global investment firms and individuals also see the Czech crown as a “safe-heaven currency,” which increases its appeal and helps its appreciation.

Not an unequivocally good thing

A strong exchange rate doesn’t necessarily benefit everyone, though. A strengthening crown can harm Czechia’s exporters because their goods become more expensive for foreign buyers, potentially hurting demand.

A strong exchange rate also has the potential to harm domestic producers due to increased competition from cheaper imports.

Domestic firms that typically borrow in foreign currencies can also be negatively affected by a stronger crown. A stronger exchange rate can increase the cost of repaying foreign-currency loans for domestic firms.

Will this continue?

Petr Lajsek, a principal analyst at the Czech financial services company Purple Trading, believes that the Czech crown will likely strengthen in the short term. However, the currency may depreciate in the second half of this year if the CNB decides to lower interest rates (this is especially likely if headline inflation falls). Two months ago, the CNB decided to keep interest rates unchanged – they are currently the highest in over two decades.

Some analysts, such as Creditas Bank chief economist Petr Dufek in ČT24, believe that the crown will not be able to sustain its strong growth. A currently weak macroeconomic foundation – based on still-high inflation and a massive public deficit – is to blame. The CNB should also be aware that the amount of foreign-exchange interventions it can do is limited, Dufek adds.

With inflation set to eventually reduce and continued CNB interventions thus less likely, whether the crown can continue its impressive streak remains to be seen. One thing is certain, though – Czechs should take this moment to make the most of the crown’s impressive strength.