CEE FX Under Pressure as Fiscal Divergence Widens, BNY Warns of Elevated Carry Risk

BNY’s analysis warns that widening fiscal divergence across Central and Eastern Europe heightens carry-trade risk for CEE currencies, increasing downside pressure on higher-yielding FX such as the Polish zloty and Romanian leu. With Poland and Romania projected to run budget deficits above 5% of GDP in 2025 and Hungary still facing high debt servicing costs, correlation within the region may break down and force investors to price country-specific risk. Czechia’s more disciplined fiscal stance leaves the crown relatively less exposed. The ECB’s policy path (faster cuts or higher-for-longer) will be a key determinant of carry attractiveness and potential currency repricing. Implication: a granular, country-by-country approach to CEE FX (including USDPLN exposure) is now warranted.