June 5, 2019 / 4:17 PM / 4 months ago

CEE MARKETS-Currencies jump on Fed rate outlook, EU warning to Italy

    * U.S. rate cut bets, EU warning to Italy help CEE
    * Polish central bank reiterates rates could stay stable
    * Czech, Hungarian, Romanian retail sales continue to surge
    * Polish 10-year bond yield hits 4-year low, tracking Bunds

 (Recasts with Polish central bank meeting, new comments, bonds,
Polish stock exchange)
    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, June 5 (Reuters) - Central European
currencies extended their gains on Wednesday as expectations for
Federal Reserve interest rate cuts hit the dollar and a
European Commission warning to Italy over its debt weighed on
several crosses of the euro.
    The region's main currencies set multi-week highs, and
Romania's leu a 4-1/2-month high against the euro.
    The Czech crown, Hungary's forint and
the leu firmed in tandem by 0.3% by 1502 GMT.
    The zloty also gained 0.1%, even though Polish central bank
governor Adam Glapinski, at a news conference after a policy
meeting, crushed any expectations that a rise in inflation in
May might have prompted a less dovish tone.
    He reiterated that there may be no need to change rates
until 2022. At Wednesday's policy
meeting, the bank left the benchmark interest rate unchanged at
1.5 percent, as expected.
    Poland's 10-year government bond yield fell 7
basis points to a 4-year low of 2.5275%, tracking a plunge of
the corresponding Bund yield to record lows.
    Bond yields fell across Europe, except for Italy, and in the
United States, driven by bets for lower Fed rates, which
weakened the greenback.
    Dollar-selling often helps Central European currencies.
    "I do not say that a parallel weakness of the euro and the
dollar is not a somewhat confusing backdrop," one Budapest-based
dealer said.
    "But the dollar has been weakened by Fed expectations rather
than global growth worries, while global inflation is not on the
rise... That is a good combination for currencies in emerging
economies that have no growth problems," the dealer added.
    Surging wages help Central European countries maintain
faster growth than the euro zone. 
    Annual growth in retail sales picked up to about 7% in the
Czech Republic and Hungary, and slowed to that pace in Romania,
according to figures released on Wednesday. The robust growth
maintains upwards pressure on consumer prices.
    One trader said there may be scope "for a possible rate
hike" in the Czech Republic after strong economic data this week
buoyed the crown after weeks of losses.
    But traders said regional currency markets remained
vulnerable amid continued fears of an escalating global trade
war between the United States and other countries. Weak U.S.
payroll figures released on Wednesday underlined those risks.
    Investors are also concerned about demand in China, the
world's second biggest economy which accounts for half of 
global consumption of industrial metals. 
    Central Europe is not heavily exposed in that sector, but
shares in Polish copper producer KGHM plunged 3.4% on
Wednesday, a key factor in the overall 0.5% fall in Warsaw's
bluechip stock index. 
            CEE       SNAPSHOT   AT                         
            MARKETS             1702 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.6550   25.7400    +0.33%    +0.20%
 crown      >                                       
 Hungary    <EURHUF=  321.2500  322.0400    +0.25%    -0.05%
 forint     >                                       
 Polish     <EURPLN=    4.2748    4.2796    +0.11%    +0.35%
 zloty      >                                       
 Romanian   <EURRON=    4.7200    4.7325    +0.26%    -1.40%
 leu        >                                       
 Croatian   <EURHRK=    7.4150    7.4185    +0.05%    -0.07%
 kuna       >                                       
 Serbian    <EURRSD=  117.7500  117.8700    +0.10%    +0.47%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1052.68  1053.830    -0.11%    +6.70%
 Budapest             40948.92  41157.02    -0.51%    +4.62%
 Warsaw                2223.27   2233.75    -0.47%    -2.34%
 Bucharest             8615.37   8472.73    +1.68%   +16.68%
 Ljubljana  <.SBITOP    881.34    883.33    -0.23%    +9.58%
 Zagreb                1858.73   1846.80    +0.65%    +6.29%
 Belgrade   <.BELEX1    733.01    733.50    -0.07%    -3.77%
 Sofia                  577.63    580.11    -0.43%    -2.83%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.5990    0.0020   +226bps     +3bps
   5-year   <CZ5YT=R    1.5010    0.0110   +210bps     +4bps
   10-year  <CZ10YT=    1.7080    0.0620   +193bps     +8bps
   2-year   <PL2YT=R    1.6400   -0.0380   +231bps     -1bps
   5-year   <PL5YT=R    1.9950   -0.0820   +260bps     -5bps
   10-year  <PL10YT=    2.5470   -0.0760   +277bps     -6bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.18      2.09      2.01      2.18
 Hungary                  0.30      0.43      0.55      0.19
 Poland                   1.74      1.71      1.70      1.72
 Note: FRA  are for ask prices                              

 (Additional reporting Karin Strohecker in London, Editing by
Gareth Jones)
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