Prague: The Czech central bank cut its currency loose from a one-sided peg that had prevented it from appreciating against the euro, setting in motion a trade that’s attracted as much as $65 billion in speculative capital.

The Czech National Bank’s board voted to exit the Swiss-inspired mechanism on Thursday, removing a policy that kept the koruna weaker than 27 per euro after inflation returned to target. The decision, announced on the bank’s website after an extraordinary meeting, initially sent the koruna swinging on both sides of the cap before it settled near its strongest level since November 2013. The monetary authority will hold a news conference at 2:15pm in Prague.

“So the koruna is free and may start appreciating, supported by a strong economy,” Komercni Banka AS economist Viktor Zeisel said by phone. “But at least in the first weeks and months, the real economy won’t play the main role in setting the exchange rate” because of a “large speculative position betting on appreciation.”

Responding to accelerating price growth, the monetary-policy panel abandoned the limit before its counterpart in the euro-zone, the European Central Bank, scales down its own unconventional stimulus. The Czech decision highlights a diverging approach to resurgent inflation in central Europe’s economies, with Hungary continuing easing without touching its benchmark and Poland forecasting stable borrowing costs in the coming quarters. The Czechs imposed the cap to avert deflation.

Read more about what might happen now that the koruna cap has dropped

In anticipation of the instrument’s demise, investors betting on koruna gains have poured into Czech assets in multiples of levels normally seen in the country’s balance of payments. But at least some of the speculative capital fled the koruna after the central bank stopped providing guidance at the end of March on the likely timing of the exit. The koruna has since shown volatility not seen in years, and the central bank warned that investors hoping to cash out quickly with a profit may struggle to find counterparties for their positions.

The koruna appreciated almost 1 per cent to 26.79 against the euro at 1:34pm in Prague. The yield on the country’s two-year bonds jumped 26 basis points to -0.16 per cent.

“The initial gains are less than investors were probably looking for,” said Paul McNamara, a money manager who helps oversee $6.3 billion at GAM UK Ltd. “There’s potential for this to go wrong, as the long-koruna position is huge and the door too small. That’s exactly why we stayed away from this trade.”

The latest official data show that the central bank bought 47.8 billion euros ($51.3 billion) in the four years through January to prevent the koruna from gaining beyond the limit. Adjusted for natural inflows seen in the balance of payments, the overall speculative position was about 50 billion euros to 60 billion euros as of March, according to estimates by Jan Bures, an analyst at the Czech unit of KBC Groep NV. ING Groep NV puts the intervention volume at about 36 billion euros so far this year.

Governor Jiri Rusnok said earlier in March that policymakers won’t be “overly sensitive” to initial swings and will let the market find an equilibrium.

“The CNB stands ready to use its instruments to mitigate potential excessive exchange rate fluctuations if needed,” the bank said in the statement.