June 6, 2019 / 9:19 AM / 3 months ago

CEE MARKETS-Currencies retreat as ECB is seen dovish

    * Likely dovish ECB comments put lid on CEE currencies
    * Currencies are off multi-week highs even though USD eases
    * Serbian cbank seen keeping rates on hold

    By Sandor Peto
    BUDAPEST, June 6 (Reuters) - Central European currencies
retreated slightly from multi-week highs set in Wednesday's
session as the European Central Bank's was expected to maintain
its dovish tone at its meeting on Thursday.
    The forint and the leu firmed mildly
from Wednesday's close, while the zloty and the Czech crown were
a shade weaker. 
    Trading was thin and rangebound.
    Dollar selling due to bets for Federal Reserve interest rate
cuts strengthened the region's currencies earlier this week.
    The dollar continued to weaken on Thursday. 
    But that no longer helped the region's currencies because a
shift towards further monetary stimulus in the euro zone, where
economies have slowed down, would  disencourage central banks
from fighting inflation by tightening their policy.
    "In the U.S. interest rate cuts are expected, and investors
wonder if the ECB has to say something about that," one
Budapest-based dealer said.
    A key market gauge of euro zone inflation expectations, the
five-year, five-year forward inflation swap, on Thursday fell to
within sight of record lows hit in 2016.
    In fast-growing Central Europe inflation has been picking up
amid a surge in wages.
    Czech and Hungarian industrial output data and details of
Romania's 5% first-quarter economic output growth suggested that
the expansion is continuing.
    The industrial figures still did not help the crown firm
further, with the uncertainty over the ECB in the backdrop.

    "We see the policy setting as adequate now with no need for
another hike in the coming months," said Erste analyst Jiri
Polansky in a note.
    "Under the assumption of some form of the soft Brexit and no
escalation of trade wars, the CNB could hike again in 2Q 2020,
in our view.
    A Reuters poll of analysts projected gains for the crown in
the coming year and a retreat for the dinar which has
been sold by the Serbian central bank in the past months to stem
its gains partly driven by demand for Serbian government bonds.
    The bank was expected to keep the region's highest benchmark
rate on hold at 3% at its meeting on Thursday.
    Hungary's bi-weekly government bond auction was expected to
draw robust demand on Thursday after they underperformed a slump
in yields elsewhere in Europe in the past days, one trader said.
    In stock markets, Polish mobile operators Orange Polska
 and Play jumped 9.6% and 10.7%, respectively,
after Play announced a tariff hike.
    The shares of Romanian investment fund Fondul Proprietatea
 rose by 0.9% to a record high.
    Last week the Romanian government watered down the share
capital requirements of mandatory private pension funds.
 
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1018 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.6690   25.6550    -0.05%    +0.15%
 crown      >                                       
 Hungary    <EURHUF=  321.1500  321.3000    +0.05%    -0.02%
 forint     >                                       
 Polish     <EURPLN=    4.2782    4.2764    -0.04%    +0.27%
 zloty      >                                       
 Romanian   <EURRON=    4.7215    4.7220    +0.01%    -1.43%
 leu        >                                       
 Croatian   <EURHRK=    7.4150    7.4140    -0.01%    -0.07%
 kuna       >                                       
 Serbian    <EURRSD=  117.7200  117.8600    +0.12%    +0.49%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1056.03  1052.680    +0.32%    +7.04%
                                       0            
 Budapest             41094.15  41073.62    +0.05%    +5.00%
 Warsaw                2240.26   2223.27    +0.76%    -1.60%
 Bucharest             8627.82   8615.37    +0.14%   +16.85%
 Ljubljana  <.SBITOP    875.64    881.34    -0.65%    +8.88%
            >                                       
 Zagreb                1859.42   1858.73    +0.04%    +6.32%
 Belgrade   <.BELEX1    731.59    733.01    -0.19%    -3.95%
            5>                                      
 Sofia                  577.48    577.63    -0.03%    -2.86%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.7080    0.1170   +237bps    +12bps
            R>                                      
   5-year   <CZ5YT=R    1.5690    0.0650   +217bps     +7bps
            R>                                      
   10-year  <CZ10YT=    1.6670   -0.0410   +189bps     -4bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6550    0.0150   +232bps     +2bps
            R>                                      
   5-year   <PL5YT=R    1.9780   -0.0220   +258bps     -2bps
            R>                                      
   10-year  <PL10YT=    2.5200   -0.0270   +274bps     -3bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                2.17      2.08      2.01      2.18
            <PRIBOR=                                
            >                                       
 Hungary                  0.32      0.47      0.53      0.19
                                                    
 Poland                   1.72      1.71      1.69      1.72
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
 (Additional reporting by Aleksandar Vasovic in Belgrade and
Agnieszka Barteczko in Warsaw
Editing by Raissa Kasolowsky)
  
 
 
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