August 7, 2018 / 10:04 AM / a year ago

CEE MARKETS-Currencies gain, but leu bucks trend as central bank turns dovish

    * Leu eases to two-week low
    * Retreating dollar lifts other CEE units
    * Leu underperforms as Romanian central bank turns less

    By Sandor Peto
    BUDAPEST, Aug 7 (Reuters) - The leu dropped to a
two-week low against the euro on Tuesday, bucking a rise by
other Central European currencies, after the Romanian central
bank downplayed chances of another rate increase.
    Before Monday's meeting, the majority of analysts had
expected the central bank to raise its 2.5 percent benchmark
rate, after three increases since January.
    But the bank kept the rate on hold and Governor Mugur
Isarescu said it may not rise much further as inflation, the
highest in the region at 5.4 percent in June, will begin to fall
    The leu, retreating from Friday's seven-month highs at 4.612
versus the euro, fell after the decision and the comments, and
extended its loss on Tuesday.
    It traded at 4.6465 at 0831 GMT, down 0.1 percent, after
touching 4.652, a two-week low.
    ING analysts said in a note that even before the central
bank's meeting they had expected a gradual retreat into the
4.65-4.67 range by the second half of August. The bank's "dovish
twist could help this happen sooner", they said.
    In the past few months, a rally by the dollar was the
driving force in the region's currency markets, causing Central
Europe's main currencies to sell off. But from time to time
investors also looked at a divergence of monetary policies in
the region.
    The leu is still stronger than it was at the end
of 2017 levels against the euro and the Czech crown has slipped
only 0.4 percent as the central bank has also increased its
    Hungary and Poland's monetary policies remained loose, and
the forint has shed 2.7 percent so far this year and
the zloty 1.9 percent.
    The forint rose above the 320 line on Tuesday for the first
time since the middle of June.
    With the dollar's index against six major currencies
retreating, appetite for the region's currencies was good, while
Turkey's lira also rebounded after a plunge on Monday.
    "But investors in our region do not really care about the
lira, which is a local, political story," one Budapest-based
fixed income dealer said.
    The dealer added that some investors may be positioning
ahead of Wednesday's Hungarian inflation figures for July
    Analysts expect the annual figure to tick up to 3.2 percent.
June's 3.1 percent rate was already a five-and-a-half-year high,
but inflation is expected to retreat around the end of this
    "If the July figure is high, and the international mood is
sour, expectations for continuing loose monetary policy can lead
to a weakening of the forint," the dealer said.
    The zloty also gained, to 4.2579 versus the euro,
off a three-month high reached in early trade at 4.2465.
    "We think that in the short term, it could be difficult for
the zloty to continue its appreciation impulse as the dollar
could remain strong and investors could take profit from the
recent EURPLN drop," BZ WBK analysts said in a note.     
            CEE       SNAPSHOT   AT                         
            MARKETS             1031 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.6370   25.6400    +0.01%    -0.37%
 crown      >                                       
 Hungary    <EURHUF=  319.4000  319.9500    +0.17%    -2.66%
 forint     >                                       
 Polish     <EURPLN=    4.2559    4.2579    +0.05%    -1.87%
 zloty      >                                       
 Romanian   <EURRON=    4.6465    4.6434    -0.07%    +0.71%
 leu        >                                       
 Croatian   <EURHRK=    7.4180    7.4175    -0.01%    +0.17%
 kuna       >                                       
 Serbian    <EURRSD=  117.8600  117.9700    +0.09%    +0.54%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1086.59  1090.580    -0.37%    +0.78%
 Budapest             37145.56  37259.80    -0.31%    -5.67%
 Warsaw                2298.45   2295.82    +0.11%    -6.61%
 Bucharest             8171.90   8187.05    -0.19%    +5.39%
 Ljubljana  <.SBITOP    891.59    890.56    +0.12%   +10.57%
 Zagreb                1831.92   1827.88    +0.22%    -0.59%
 Belgrade   <.BELEX1    743.16    743.20    -0.01%    -2.19%
 Sofia                  641.01    639.40    +0.25%    -5.38%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.2350   -0.0130   +183bps     -1bps
   5-year   <CZ5YT=R    1.7290    0.0010   +195bps     -1bps
   10-year  <CZ10YT=    2.2120    0.0050   +181bps     -1bps
   2-year   <PL2YT=R    1.6070    0.0130   +220bps     +1bps
   5-year   <PL5YT=R    2.4910   -0.0030   +271bps     -1bps
   10-year  <PL10YT=    3.1270    0.0050   +272bps     -1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.65      1.75      1.95      1.44
 Hungary                  0.39      0.60      0.80      0.16
 Poland                   1.73      1.75      1.80      1.70
 Note: FRA  are for ask prices                              
 (Additional reporting from Luiza Ilie in Romania, editing by
Larry King)
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