Czech Koruna Soars As Central Bank Ditches Its Euro Peg

By Joseph Adinolfi Markets MarketWatch Pulse

The Czech National Bank dropped it's exchange-rate peg on Thursday, a widely anticipated move that has nevertheless caused its currency, the koruna, to appreciate sharply against the euro. The euro slid 1.3% after the decision, recently trading at 26.69 koruna, compared with 27.04 koruna late Wednesday in New York. Speculation that the central bank would soon ditch its peg began percolating early this year, as inflation in the Czech Republican approached the central bank's target of 2%. The CNB's commitment to the peg, which was first adopted in 2013, expired in March, and market strategists at many large European banks, including BNP Parisbas and Societe Generale, anticipated that the central bank would abandon the peg in April or March. In a statement, the central bank said it "stands ready to use its instruments to mitigate potential excessive exchange rate fluctuations if needed." The peg had kept the euro-koruna exchange rate as close as possible to 27.

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