Central European Currency Volatility in a Shifting Eurozone Outlook

The Central and Eastern European (CEE) currency landscape in 2025 is marked by divergent trajectories, shaped by domestic monetary policies and the eurozone's evolving outlook. As the European Central Bank (ECB) contemplates rate cuts to stimulate a fragile recovery, the Czech koruna (CZK), Polish zloty (PLN), and Romanian leu (RON) are navigating distinct paths. ING's EMEA FX Talking note underscores how these currencies reflect a mix of resilience, vulnerability, and strategic positioning, offering nuanced opportunities for investors.

Polish Zloty (PLN): Resilience Amid Dovish Pivots

The Polish zloty has emerged as the most resilient CEE currency in 2025, supported by robust EU fund inflows and a hawkish National Bank of Poland (NBP) policy. However, recent developments suggest a shift. ING forecasts a 50-basis-point rate cut in September 2025, followed by incremental reductions, bringing the policy rate to 4.75% by year-end. This dovish pivot, driven by moderating wage growth (9.2% year-on-year) and improving inflation trends, signals the NBP's confidence in domestic demand-led growth, ING says.

While the zloty's resilience has been bolstered by EU-funded construction projects and a rebound in fixed investment, the currency faces bearish pressures from the expected rate differential against the eurozone. ING projects the EUR/PLN pair to stabilize around 4.25, with political uncertainties-such as the right-wing presidential win-limiting upward potential. For investors, the zloty presents a short-term trade: hedging against rate cuts while capitalizing on EU-driven liquidity.

Czech Koruna (CZK): A Hawkish Outperformer

The Czech koruna is poised to outperform its CEE peers in 2025, driven by the Czech National Bank's (CNB) hawkish stance and a stronger-than-expected economy. ING forecasts the EUR/CZK exchange rate to decline to 24.40 by year-end, reflecting a widening interest rate differential as the ECB initiates cuts while the CNB maintains elevated rates.

Domestic factors, including a booming construction sector and tight labor markets, underpin the koruna's strength. However, asymmetric risks persist. Protracted weakness in industry and global economic headwinds could test the koruna's resilience, particularly if the CNB's inflation projections prove overly optimistic. For long-term investors, the koruna offers a compelling case: a currency supported by structural economic outperformance and a central bank committed to inflation control.

Romanian Leu (RON): Stability Amid Structural Challenges

The Romanian leu remains a stable but cautious play in 2025. ING highlights the National Bank of Romania's (NBR) tight grip on the currency, with interventions to manage liquidity surpluses and FX swap yields. Despite this, the leu faces structural headwinds: a 0.7% GDP growth rate in 2024, a persistent trade deficit, and political uncertainty ahead of presidential elections, according to the White Book 2025: Macroeconomic Overview.

ING forecasts a neutral to slightly bearish outlook for the RON, with the EUR/RON rate expected to rise to 5.10 by year-end. While the NBR's fiscal conservatism provides a floor for the leu, investors must weigh in on the country's long-term competitiveness. Structural reforms and improved external competitiveness could unlock upside potential, but for now, the leu remains a defensive asset.

Investment Opportunities and Risks

The CEE currencies present a spectrum of opportunities:
- PLN: Short-term volatility from rate cuts, with EU-driven liquidity as a tailwind.
- CZK: Long-term appreciation potential, contingent on CNB policy and global demand.
- RON: Stability with limited upside, requiring patience for structural reforms to materialize.

However, external risks loom large. Geopolitical tensions, such as the Ukraine-Russia war, and global trade pressures could amplify volatility. Investors should also monitor the ECB's rate-cut timeline and its impact on cross-currency differentials.

Conclusion

As the eurozone grapples with a fragile recovery, the CEE currencies offer a microcosm of divergent economic narratives. The zloty's resilience, the koruna's hawkish outperformance, and the leu's cautious stability each reflect unique domestic and external dynamics. For investors, the key lies in balancing short-term tactical moves with long-term structural trends, leveraging ING's insights to navigate a landscape where monetary policy and regional growth diverge.