June 7, 2018 / 1:27 PM / 6 months ago

CEE MARKETS-Dollar selling boosts CEE fx, Serbian cbank holds fire

    * Dollar retreat helps CEE currencies regain ground
    * Serbian central keeps rates on hold rather than cutting
them
    * Bond yields rise on ECB, but Hungarian sale draws good
demand

 (Adds Serbian central bank decision, Hungary's auction)
    By Sandor Peto and Aleksandar Vasovic
    BUDAPEST/BELGRADE, June 7 (Reuters) - The dollar's retreat
on global markets helped Central European currencies firm on
Thursday, while government bond yields tracked a rise of those
in the euro zone. 
    Bonds were hit by comments from European Central Bank Chief
Economist Peter Praet, who said on Wednesday that inflation was
on its way back to target and that the ECB might reveal more
about the end of its asset buying programme next
week.
    Less stimulus from the ECB could be negative for assets in
Central European markets which are tightly integrated with the
euro zone. But regional currencies still firmed.
    "This is because their strengthening is about the dollar
rather than the euro, as the dollar has retreated in all crosses
quite significantly in the past day," one Budapest-based fixed
income trader said.
    "That is not a surprise after its recent surge ... investors
are adjusting positions, waiting for new information from the
Fed's (Federal Reserve) and the ECB's meetings next week."
    Reuters surveys showed on Thursday that the dollar's
dominance could soon fade, while Central Europe's most liquid
units could strengthen over the next year. 
    The region's main currencies hit multi-month lows against
the euro last month as investors rearranged positions amid a
global dollar rally. 
    They have recouped only part of the ground since then, and
further gains are possible if the dollar does not resume its
rally, market participants said.
    The forint led Thursday's gains, firming 0.2
percent against the euro, while the Hungarian government's
bi-weekly debt auction attracted healthy demand.
    It sold bonds worth 82 billion forints, a relative relief
compared with its previous auctions which added more than 100
billion forints each to the debt supply.
    The average yields of the bonds sold were higher by a few
basis points from Wednesday's secondary market levels, and
remained steady after the auction, with slight buying pressure,
one Budapest-based trader said.
    Views on risks from next week's ECB guidance were mixed. 
Hawkish comments could further dent regional government bonds.
    But ING economists in Warsaw said the ECB may even extend
its asset buying programme. "We also think that the ECB will
communicate the possibility of increasing the scale of asset
buys if the risk of economic slowdown appears," they said in a
note.
    Elsewhere, Serbia's central bank kept its main interest rate
on hold at 3 percent, as expected, not cutting it further even
though inflation runs well below its 3 percent target.

    The dinar eased slightly.    
            CEE       SNAPSHOT   AT                         
            MARKETS             1424 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.6450   25.6790    +0.13%    -0.40%
 crown      >                                       
 Hungary    <EURHUF=  317.5000  318.1300    +0.20%    -2.07%
 forint     >                                       
 Polish     <EURPLN=    4.2610    4.2630    +0.05%    -1.99%
 zloty      >                                       
 Romanian   <EURRON=    4.6560    4.6560    +0.00%    +0.51%
 leu        >                                       
 Croatian   <EURHRK=    7.3860    7.3870    +0.01%    +0.60%
 kuna       >                                       
 Serbian    <EURRSD=  118.1000  118.0500    -0.04%    +0.34%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1077.58  1073.270    +0.40%    -0.05%
                                       0            
 Budapest             37582.21  37157.46    +1.14%    -4.56%
 Warsaw                2283.83   2256.67    +1.20%    -7.21%
 Bucharest             8278.12   8289.31    -0.13%    +6.76%
 Ljubljana  <.SBITOP    899.45    907.58    -0.90%   +11.54%
            >                                       
 Zagreb                1824.83   1829.77    -0.27%    -0.98%
 Belgrade   <.BELEX1    740.81    743.97    -0.42%    -2.50%
            5>                                      
 Sofia                  632.32    634.18    -0.29%    -6.66%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.0570    0.0290   +169bps     +4bps
            R>                                      
   5-year   <CZ5YT=R    1.4730   -0.0080   +161bps     -3bps
            R>                                      
   10-year  <CZ10YT=    2.0430    0.0140   +154bps     -3bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.5960    0.0150   +223bps     +3bps
            R>                                      
   5-year   <PL5YT=R    2.4710    0.0310   +260bps     +1bps
            R>                                      
   10-year  <PL10YT=    3.2730    0.0340   +277bps     -1bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.15      1.32      1.44      0.92
            <PRIBOR=                                
            >                                       
 Hungary                  0.07      0.31      0.41      0.12
                                                    
 Poland                   1.76      1.76      1.81      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 

 (Reporting by Sandor Peto
Editing by Catherine Evans and David Stamp)
  
 
 
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