July 30, 2018 / 9:39 AM / a year ago

CEE MARKETS-Currencies ease after rebound, Czechs may hike rates again

    * Hungary narrows 10-year bond yield spread over Poland
    * Poland to release key July inflation data on Tuesday
    * Czech central bank seen increasing rates further

    By Sandor Peto
    BUDAPEST, July 30 (Reuters) - Central European currencies
lost steam in thin trade on Monday ahead of the publication of
key economic data in the region and the United States.
    They had firmed in the past few weeks after losses in the
second quarter of 2018, when the dollar rallied, causing
a sell-off in emerging markets, and rose to multi-week highs
against the euro by late last week.
    On Monday, however, the Czech crown, the forint
 and the zloty all eased by 0.1 percent by
0821 GMT, and the leu was also a shade weaker.
    "The currencies are stabilising, while there is hardly any
trade," a Budapest-based currency dealer said, adding that 
global sentiment would remain the key driver.
    While updates on inflation and payrolls in the United States
and a meeting of the Federal Reserve could influence appetite
for the dollar this week, Poland is due to release Central
Europe's first July inflation figures on Tuesday.
    Worry over a pick-up in inflation in the region in the past
few months played a role in the weakening of currencies, mainly
in Hungary, where the central bank keeps markets awash in money.
    The forint set a record low against the euro early this
month and Hungarian government bonds well underperformed
regional peers like Poland. Short positions, however, have been
closed in forint markets in the past weeks. 
    On Monday, Hungarian bonds were steady even though yields
mostly ticked up in the euro zone.
    The 10-year benchmark paper's yield was quoted around 3.24
percent, while the corresponding Polish yield rose 1 basis point
to 3.1635 percent.
    Poland's spread over its Hungarian peer narrowed to 8 basis
points from around 50 basis points early this month.    
    After pressure eased on forint assets, Hungary's central
bank last week reaffirmed its loose policy, and money market
interest rates continued to drop slowly, one Budapest-based
fixed income trader said.
    Czech central bankers, on the contrary, indicated further
interest rate hikes in their public comments last week, and many
investors expect the bank now to deliver its fifth rate hike
since August 2017 at its meeting on Thursday.
    The crown, trading at 25.64 against the euro, has hovered
near eight-week highs despite Monday's weakening.
    "As the CNB (Czech central bank) would have to find very
good reasons why not to hike after this (comments), the crown is
likely to stay strong," Erste analysts said in a note.
    A rise in Romania's short-term market interest rates due to
tight liquidity might mean a likely central bank rate rise
coming later than August there, the analysts added.   
            CEE       SNAPSHOT   AT                         
            MARKETS             1021 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.6400   25.6200    -0.08%    -0.38%
 crown      >                                       
 Hungary    <EURHUF=  322.1600  322.0000    -0.05%    -3.49%
 forint     >                                       
 Polish     <EURPLN=    4.2839    4.2805    -0.08%    -2.51%
 zloty      >                                       
 Romanian   <EURRON=    4.6250    4.6240    -0.02%    +1.18%
 leu        >                                       
 Croatian   <EURHRK=    7.3980    7.4025    +0.06%    +0.44%
 kuna       >                                       
 Serbian    <EURRSD=  117.8800  118.0000    +0.10%    +0.53%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1089.56  1093.020    -0.32%    +1.06%
 Budapest             35939.60  35943.64    -0.01%    -8.73%
 Warsaw                2289.83   2290.77    -0.04%    -6.96%
 Bucharest             8090.87   8040.78    +0.62%    +4.35%
 Ljubljana  <.SBITOP    885.38    886.40    -0.12%    +9.80%
 Zagreb                1834.44   1833.64    +0.04%    -0.46%
 Belgrade   <.BELEX1    746.92    745.87    +0.14%    -1.70%
 Sofia                  631.72    632.31    -0.09%    -6.75%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.1760    0.0060   +178bps     -1bps
   5-year   <CZ5YT=R    1.6060   -0.0080   +181bps     -3bps
   10-year  <CZ10YT=    2.1630   -0.0020   +174bps     -1bps
   2-year   <PL2YT=R    1.6320    0.0190   +223bps     +1bps
   5-year   <PL5YT=R    2.5210    0.0210   +272bps     +0bps
   10-year  <PL10YT=    3.1920    0.0370   +277bps     +3bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.44      1.65      1.77      1.20
 Hungary                  0.32      0.52      0.72      0.19
 Poland                   1.74      1.76      1.82      1.70
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto
Editing by Mark Heinrich)
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