November 16, 2018 / 10:45 AM / a month ago

CEE MARKETS-CEE currencies reverse firming on Brexit twists

    * CEE units give up gains on UK politics turmoil
    * Sterling may continue to guide CEE currencies-analyst
    * Zloty firms on cbank head quitting rumour, then retreats
    * Czech PPI rise underpins rate hike expectations 

    By Sandor Peto and Marcin Goclowski
    BUDAPEST/WARSAW, Nov 16 (Reuters) - Central European
currencies reversed early gains on Friday as  sterling and the
euro retreated after a report that British lawmakers planned to
bring a vote of no confidence in Prime Minister Theresa May.

    That overshadowed speculation that Polish central bank (NBP)
Governor Adam Glapinski might quit.
    Sterling emerged as an unlikely driver for Central
European currencies this week as the twists and turns over 
Britain's EU exit deal caused gyrations in European markets.
    While the region's trade links with Britain faced scrutiny,
the main market impacts came via flows into and from big
currencies such as sterling, the euro and the dollar,
market participants said.
    "The Brexit news caused quite fast movements in sterling and
the euro/dollar. The forint got affected via the dollar," one
Budapest-based dealer said.
    Buying of the dollar, either due to European risks or rising
U.S. interest rates, has often triggered a selling of Central
European currencies this year.
     It is now being bought due to uncertainty over the economic
impacts of Brexit and Italy's dispute with Brussels over Rome's
increased budget deficit goal, analysts and dealers said.
    "Sterling is likely to set the tone for the CEE currencies
in the coming weeks which will be dominated by the ongoing drama
in UK politics," Rabobank fx strategist Piotr Matys said in a
note dated Nov. 15.
    The zloty eased 0.1 percent to 4.296 versus the
euro by 0958 GMT.
    Initially, the zloty firmed amid speculation that
the NBP's governor might quit, after the head of financial
market regulator KNF, proposed for the job by governor
Glapinski, resigned amid corruption allegations.
    "It supports the zloty, as any other central bank governor
who would replace him might be more hawkish," one Warsaw-based
dealer said. 
    The crown retreated and got stuck on the weaker
side of the 26 line versus the euro.
    Earlier, it strengthened a bit after the Czech October
industrial producer price index (PPI) showed a 3.9 percent
annual rise, above analysts' 3.3 percent forecast.
    The rise underpins expectations for Czech central bank rate
hikes aimed at fighting inflation to continue, said Radomir Jac,
chef economist of Generali Investments CEE.
    The bank could take a break in December after four straight
rate hikes and deliver the next increase in February, he added.
    Hungary's forint was a touch firmer.
    Hungary's central bank is expected to hold rates at record
lows on Tuesday, but it may send a signal about future
tightening against a backdrop of robust economic growth and
rising inflation.
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1058 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   26.0020   26.0000    -0.01%    -1.77%
 crown      >                                       
 Hungary    <EURHUF=  321.6800  321.7900    +0.03%    -3.35%
 forint     >                                       
 Polish     <EURPLN=    4.2960    4.2901    -0.14%    -2.79%
 zloty      >                                       
 Romanian   <EURRON=    4.6643    4.6640    -0.01%    +0.33%
 leu        >                                       
 Croatian   <EURHRK=    7.4330    7.4253    -0.10%    -0.04%
 kuna       >                                       
 Serbian    <EURRSD=  118.0500  118.1900    +0.12%    +0.38%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1083.63  1081.030    +0.24%    +0.51%
                                       0            
 Budapest             39130.31  39070.97    +0.15%    -0.63%
 Warsaw                2188.25   2202.91    -0.67%   -11.09%
 Bucharest             8539.52   8573.66    -0.40%   +10.13%
 Ljubljana  <.SBITOP    814.30    815.59    -0.16%    +0.98%
            >                                       
 Zagreb                1751.31   1749.13    +0.12%    -4.97%
 Belgrade   <.BELEX1    753.35    752.56    +0.10%    -0.85%
            5>                                      
 Sofia                  596.53    595.74    +0.13%   -11.94%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.6290    0.1660   +228bps    +16bps
            R>                                      
   5-year   <CZ5YT=R    1.8640    0.0450   +209bps     +3bps
            R>                                      
   10-year  <CZ10YT=    2.0970    0.0020   +173bps     -1bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6230    0.0010   +227bps     -1bps
            R>                                      
   5-year   <PL5YT=R    2.5220    0.0470   +275bps     +3bps
            R>                                      
   10-year  <PL10YT=    3.2960    0.0570   +292bps     +4bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                2.20      2.34      2.44      1.99
            <PRIBOR=                                
            >                                       
 Hungary                  0.39      0.71      1.07      0.00
                                                    
 Poland                   1.77      1.81      1.89      1.72
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
 (Additional reporting by Jan Lopatka from Prague
Editing by Keith Weir)
  
 
 
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