Geoff Yu of BNY points out that one of the main factors influencing regional FX and carry trades is the increasing budgetary strain in Central and Eastern Europe (CEE). Poland and Hungary have superior current account and foreign direct investment (FDI) dynamics than Romania, which has severe fiscal and external imbalances. Yu anticipates that yield curves and currency holdings throughout CEE will show additional fiscal disparity.
Romania, Poland, and Hungary from an economic perspective
"Central and Eastern Europe (CEE) has the fiscal stress points with the biggest FX repercussions in the near future. No regional central bank seems prepared to advocate for higher rates, despite our expectations for a more proactive strategy. The inflation angle will probably prove to be temporary, just like in the UK, and the greater threat to inflation expectations is fiscal.
"A currency with materially low real rates and very big twin deficits—both nearly hit 8% of GDP as of Q4 2025—may become destabilized due to the recent collapse of the Romanian government, which indicates to severe short-term fiscal instability."
"The budgetary paths of Hungary and Poland are likewise getting close to high single-digit GDP percentages. But over the past two years, both have witnessed significant improvements in their current accounts, and inward FDI and current transfers—especially for Hungary following the election—offer a better sustainability profile."
The region's common short-term inflation pressures have been dictated by external factors. Nonetheless, additional fiscal disparity is anticipated, which must to be represented in currency holdings and flow.
Romania, Poland, and Hungary from an economic perspective
"Central and Eastern Europe (CEE) has the fiscal stress points with the biggest FX repercussions in the near future. No regional central bank seems prepared to advocate for higher rates, despite our expectations for a more proactive strategy. The inflation angle will probably prove to be temporary, just like in the UK, and the greater threat to inflation expectations is fiscal.
"A currency with materially low real rates and very big twin deficits—both nearly hit 8% of GDP as of Q4 2025—may become destabilized due to the recent collapse of the Romanian government, which indicates to severe short-term fiscal instability."
"The budgetary paths of Hungary and Poland are likewise getting close to high single-digit GDP percentages. But over the past two years, both have witnessed significant improvements in their current accounts, and inward FDI and current transfers—especially for Hungary following the election—offer a better sustainability profile."
The region's common short-term inflation pressures have been dictated by external factors. Nonetheless, additional fiscal disparity is anticipated, which must to be represented in currency holdings and flow.
