The exchange rate of the crown against its reference currency - the euro - stalled at 42.750 crowns to the euro and despite analysts' predictions of a negative effect of the referendum on the crown's exchange rate, the following day it actually slightly improved its position to 42.600 crowns to the euro. Contrastingly, the cross reference crown to the dollar far from stabilised. After the euro reached a historical minimum against the dollar in early September the cross dollar to crown rate fell from 47.300 to 49.300 crowns to the American currency. The efforts of the European Central Bank (ECB) to support the euro verbally rather than with strong action were uncoordinated and confused, combining to create just the opposite effect.
The second week of September brought an increase in activity for domestic clients selling crowns. After the leader of the political party Smer, Robert Fico, recommended to his supporters that they take part in the referendum and vote for the early elections, these same investors were joined by foreign bank houses in off-loading crowns. Smer has, according to polls, around 18% support among voters, and the possibility of early elections became a serious threat.
The crown weakened to 42.780 crowns to the euro, even despite the public announcement of a positive macro-economical result - year-on-year industrial production growth of 7.7% - and the trend of gradual weakening of the crown continued over the next few days, the exchange rate stopping at 42.950 crowns to the euro. This later corrected to 42.820 crowns to the euro. The weakening of the crown towards the euro combined with the fall of the euro against the dollar forced the crown over the psychological border of 50 to the dollar, trading at between 50.900 - 50.150 to the dollar.
The crown continued its negative trend in the last week of September. Because of continuous selling of crowns by both domestic investors and foreign banks, the crown reached a year low against the euro - 43.850. This trend is expected to continue and reach a peak immediately before the referendum.
Peter Kríž is a money markets analyst at Ľudová banka in Bratislava. Questions and comments can be sent to him at Peter_Kriz@luba.sk