July 18, 2018 / 10:35 AM / 8 months ago

CEE MARKETS-Currencies ease vs dollar despite strong Polish output

    * Reaction to strong dollar muted by U.S. interest rate
    * Robust Polish wage, output data fail to lift zloty 
    * Bonds, equities mixed and rangebound

    By Sandor Peto
    BUDAPEST, July 18 (Reuters) - A strengthening dollar put
pressure on Central European currencies on Wednesday despite a
batch of robust Polish data.
    The dollar rose against the euro after an upbeat
assessment of the U.S. economy from Federal Reserve Chairman
Jerome Powell in a testimony on Tuesday.
    The reaction of Central Europe's more liquid currencies,
which have seen sustained losses against a rallying dollar over
the past few months, was mitigated by the view that Powell's
outlook did not change expectations for U.S. interest rates.
    The forint and the zloty eased by about
0.15 percent against the euro and the leu almost 0.1
    The Czech crown managed to nose ahead to 25.855 in
highly illiquid summertime trade. Regional equities markets were
mixed and rangebound.
    After the months-long sell-off, fuelled by the dollar's
rally, investors were loath to sell more and were sticking with
their positions in regional assets, traders said.    
    Hungarian yields were flat, with the 10-year government bond
trading at 3.3 percent.
    "(Hungarian government bond) yields dropped (in the past
weeks) when there was no momentum from news. But they may not
fall further if the forint does not resume its strengthening,"
one Budapest-based fixed income trader said.
    Poland's corresponding yield rose 2 basis points to 3.1
percent, rebounding from Tuesday's 10-week lows.
    Poland reported a strong 6.8 percent annual rise in its June
industrial output on Wednesday.
    Those figures and Tuesday's stronger-than-expected wage
growth data are unlikely to change the Polish central bank's
loose monetary policy stance as inflation, despite a regional
pick-up, is well within the bank's target range, analysts said.
    The Polish economy can grow by a robust 4.6 percent this
year "but we see risks to the upside to our forecast", Erste
analyst Katarzyna Rzentarzewska said in a note.    
    Czech government bond yields dropped by 1 to 2 basis points.
The 10-year paper traded at 2.11 percent.
    The Czech central bank has been fighting a rise in inflation
to above its 2 percent goal by repeatedly increasing interest
rates since last August.
    KBC analysts said in a note a flattening of the Czech rate
curve may be a warning of a recession to come.
    But their model looking at the difference between 10-year
Czech interest rate swaps and the 3-month PRIBOR rate
 "implies less than a 20 percent probability of a Czech
recession in the 10-month horizon", they said.
            CEE       SNAPSHOT   AT                         
            MARKETS             1129 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.8550   25.8610    +0.02%    -1.21%
 crown      >                                       
 Hungary    <EURHUF=  323.8400  323.3400    -0.15%    -3.99%
 forint     >                                       
 Polish     <EURPLN=    4.3041    4.2981    -0.14%    -2.97%
 zloty      >                                       
 Romanian   <EURRON=    4.6540    4.6515    -0.05%    +0.55%
 leu        >                                       
 Croatian   <EURHRK=    7.3900    7.3858    -0.06%    +0.55%
 kuna       >                                       
 Serbian    <EURRSD=  118.0000  117.9800    -0.02%    +0.42%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1083.04  1081.390    +0.15%    +0.45%
 Budapest             34615.14  34751.13    -0.39%   -12.09%
 Warsaw                2163.87   2153.21    +0.50%   -12.08%
 Bucharest             8012.71   8005.25    +0.09%    +3.34%
 Ljubljana  <.SBITOP    882.12    879.55    +0.29%    +9.39%
 Zagreb                1786.14   1791.63    -0.31%    -3.08%
 Belgrade   <.BELEX1    742.45    734.84    +1.04%    -2.28%
 Sofia                  625.01    624.47    +0.09%    -7.74%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.0880   -0.0170   +172bps     -3bps
   5-year   <CZ5YT=R    1.5460   -0.0080   +182bps     -1bps
   10-year  <CZ10YT=    2.1120   -0.0120   +177bps     -1bps
   2-year   <PL2YT=R    1.6200    0.0060   +226bps     +0bps
   5-year   <PL5YT=R    2.4990    0.0270   +277bps     +3bps
   10-year  <PL10YT=    3.1070   -0.0150   +276bps     -1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.44      1.65      1.77      1.18
 Hungary                  0.47      0.67      0.91      0.26
 Poland                   1.74      1.76      1.80      1.70
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto
Editing by Louise Ireland)
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