The Czech koruna hit its strongest levels against major currencies in around four years across October 4-5 as top-performing emerging market fund managers stuck to an underlying bearishness on the dollar and bought into more exotic currencies.

The koruna, a star player among the world's currencies this year amid exceptional Czech economic growth, was trading at 25.81/euro and 22.04/dollar by the end of trading on October 5.

Reuters reported that data from research firm eVestment showed that from the second quarter of 2016 to the second quarter of 2017, long positions in the Czech Republic’s local currency bonds surged to 44.9% from 11.4% and the proportion of investors with currency exposure to the koruna soared to 68.0% from 12.7%.

On October 5, analyst Frantisek Taborsky of Raif­feisenbank told Czech daily Pravo that it was clear before the September 27 Czech central bank meeting that opted to hold rates - though the regulator is widely thought very likely to make another cut at its November meeting - that specula­tors were intent on betting on a further appreciation of the currency. That was despite existing exposure amounting to tens of billions of euros. Taborsky anticipated that the koruna would strengthen to 25.70/euro by the end of this year.

In early September Dutch bank ING, which a year ago predicted that buying the koruna would be “the trade of 2017’”, said it was closing its recommendation on the currency. It had risen less than expected since the ending of an exchange rate cap and speculation on the currency was overbought, the bank said.

ING had recommended clients position for a jump in the koruna’s value against the euro as the Czech central bank prepared to scrap the 27/euro cap introduced in late 2013. Since the central bank went ahead and removed the cap in April, the koruna has struggled to break below 26.00/euro, despite the central bank starting out on a monetary tightening cycle. ING had predicted it might strengthen against the euro by more than 10% but to date since the cap was pulled it has not even attained half that.

The central bank would have to push ahead with a much more hawkish tightening cycle to push the rate to the euro substantially lower, analysts say.