Central and Eastern European currencies such as the Hungarian forint (HUF) and Polish złoty (PLN) have held up into the fourth week of the conflict, supported by high real rates and liquidity. Deteriorating fundamentals, plus energy and labour pressures and expected Western Europe rate rises, may force faster policy shifts by CEE central banks. Hungary’s central bank (MNB) decision is framed as a test for high-yield currencies, with HUF flows described as solid over the past week after early outflows at the start of the conflict. HUF is described as one of the best performers in EMEA across different asset classes, alongside policy risks linked to Hungary’s energy price guarantees. The MNB is expected to keep rates unchanged, with a 300–400bp real rate buffer cited as enough to help limit outflows if near-term CPI matches earlier forecasts. The text also notes this may be the minimum, as higher energy and labour costs could reduce real rates quickly. PLN and HUF are described as offering liquidity and real rates, while policy risks rise. RON and CZK are described as underperforming, with RON listed as one of the worst in iFlow due to low real rates and described as moving into a materially underheld position. The resilience of Central and Eastern European currencies like the forint and zloty is being seriously tested. The high real rate buffers that have protected these currencies for years are now shrinking as our central banks begin to cut rates while inflation remains stubborn. This situation is making traders nervous, as the main reason for holding these assets is weakening. Looking back to 2025, we remember having a comfortable real rate cushion of 300 to 400 basis points in countries like Hungary. Today, with the MNB’s policy rate at 6.0% and inflation persisting near 4.5%, that buffer has been sliced to around 150 basis points. This significantly changes the risk-reward calculation for holding the forint. The European Central Bank holding its own policy rate steady at a higher-than-expected 3.5% adds significant pressure. The yield advantage that once made the zloty an obvious choice is now much less compelling. Consequently, we believe traders should be cautious about being long these currencies without protection. The Romanian leu and Czech koruna are showing the strain most clearly, a trend that continues from what we saw develop in 2025. With Romania’s inflation still high at 5.0%, its 6.5% policy rate offers a real yield that is barely competitive with less risky assets. The koruna, which was never a strong carry trade, continues to be overlooked by investors seeking yield. Recent data showing a surprise contraction in German industrial production also flashes a warning sign for our export-driven economies. Given this backdrop, we think traders should consider buying downside protection through put options on pairs like EUR/HUF and EUR/PLN. This strategy offers a way to hedge against a sudden currency drop if fundamentals deteriorate further. For now, the positive real rates are just enough to compensate for risks like Poland’s recent fiscal package, which has raised concerns about its budget deficit. We believe that any sign of the ECB staying higher for longer could cause a rapid exit from CEE currency positions. Watching the daily changes in real rate differentials against the Eurozone is now more critical than ever.

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