September 13, 2012 / 9:11 AM / 5 years ago

CEE MARKETS 3-FX down on fragile pre-Fed risk appetite

(Adds Polish CPI, recasts with new comments and prices)
    * Currencies retreat on concern Fed comments will spark
profit-taking
    * Forint leads as Simor comments confirm deep split in
central bank
    * Polish CPI drops, bonds firm as rate cut remains in the
cards
    * Weak economies, monetary easing likely to drag later

    By Jason Hovet and Sandor Peto
    PRAGUE/BUDAPEST, Sept 13 (Reuters) - Central European
currencies retreated on Thursday as investors waited for
comments from a key U.S. Fed meeting, led by the forint of
Hungary where the central bank's governor confirmed a deep split
among monetary policy makers.
    The region's assets have been lifted in the past weeks by
hopes that central banks in the U.S. and the euro zone would
pump more money into markets to help their economies.
    But even if the Fed announces monetary stimulus, a retreat
of the euro against the dollar and falls or sideways
movements in developed equity markets suggest that investors are
ready to take profit, one Budapest-based bond trader said.
    "Also this is the last piece of positive news that had been
expected -- with the good news here, no further good news will
be ahead," the trader said.
    Economic slowdown in Europe and the U.S., a continuing debt
crisis in the euro zone and inflation concerns may shift into
the focus in the next months and diminish investors' risk
appetite, market participants said.
    The forint eased half of a percent against the
euro by 1441 GMT to 284.49, while Hungarian government bond
yields rebounded from one-year lows hit on Wednesday. Three-year
yields rose 8 basis points to 6.70 percent.
    Hungarian central bank Governor Andras Simor slammed a rate
cut pushed through by the bank's doves last month, saying in an
interview that inflation would exceed the target and that there
was a huge difference between the opinions of rate-setters.
    The comments had no immediate impact on prices but weighed
on sentiment when European markets turned gloomier, dealers
said.
    The dovish majority in the bank is expected to cut interest
rates gradually further to help the economy which is in
contraction.
    
    RATE CUTS, RECESSION
    Analysts have been glum on the outlook for emerging Europe's
currencies as the region's economies battle recession or a sharp
slowdown, and central banks look to loosen policy. 
    The central bank of Poland, whose economy has slowed down,
has also turned more dovish since an interest rate hike in May.
    Figures published on Thursday showed a drop in annual
inflation to 3.8 percent in August from 4.0 percent in July,
keeping alive expectations that the central bank may cut
interest rates in October or November. 
    "In all, it can deliver rate cuts totaling 100 basis points 
within nine months," said Rafal Benecki, chief economist at ING
Bank in Warsaw.
    Rate cuts could help Polish yields drop, lifting the value
of bonds, and are viewed as less risky than in Hungary whose
debt is higher and economy is more reliant on exports to the
crisis-hit euro zone.
    Polish bond yields dropped 2-3 basis points, while the zloty
 firmed 0.1 percent against the euro to 4.101.
     On other markets, the Romanian leu shed 0.4
percent to 4.508, while the Czech crown was flat at
24.479, a half of a percent off a one-year high hit this week.
    Equities fell in the region, led by Budapest's main index
 which eased 1.4 percent. 
 --------------------------MARKET SNAPSHOT--------------------
 Currency                    Latest   Previous Local    Local
                                      close    currency currency
                                               change   change
                                               today    in 2012 
 Czech crown                  24.479    24.478   0%   +4.35%
 Polish zloty                 4.101    4.105  +0.1%   +8.87%
 Hungarian forint             284.49    283.1   -0.49%   +10.58%
 Croatian kuna                7.405    7.384   -0.28%   +1.5%
 Romanian leu                 4.508    4.492   -0.35%    -4.15%
 Serbian dinar                117.04    117.36  +0.27%    -8.62%
 Yield Spreads
 Czech treasury bonds           
 2-yr T-bond   CZ2YT=RR    -4 basis points to  48bps over bmk*
 7-yr T-bond   CZ7YT=RR    -8 basis points to  +104bps over bmk*
 10-yr T-bond   CZ9YT=RR    -2 basis points to  +144bps over bmk*
 Polish treasury bonds           
 2-yr T-bond   PL2YT=RR    -4 basis points to  +402bps over bmk*
 5-yr T-bond   PL5YT=RR    -2 basis points to  +382bps over bmk*
 10-yr T-bond PL10YT=RR    -3 basis points to  +327bps over bmk*
 Hungarian treasury bonds           
 3-yr T-bond   HU3YT=RR   +7 basis points to  +656bps over bmk*
 5-yr T-bond   HU5YT=RR   +6 basis points to  +638bps over bmk*
 10-yr T-bond   HU10YT=RR +5 basis points to  +574bps over bmk*
 *Benchmark is German bond equivalent.
 All data taken from Reuters at 1641 CET.
 Currency percent change calculated from the daily domestic 
 close at 1600 GMT.
 


    
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 (Reporting by Reuters bureaus, writing by Jason Hovet/Sandor
Peto; Editing by Ron Askew; editing by Ron Askew)

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