September 7, 2018 / 10:49 AM / 9 months ago

CEE MARKETS-Forint leads firming, leu retreats to one-week low

    * Forint and zloty jump as dollar continues to retreat
    * Hungary's trade surplus narrows but remains sizeable
    * Hungarian bonds firms despite Aug budget deficit jump
    * Leu bucks regional firming after GDP breakdown figures

    By Sandor Peto
    BUDAPEST, Sept 7 (Reuters) - Central European currencies
extended the previous session's gains on Friday as a retreat of
the dollar in global markets cut pressure on emerging
market currencies.
    The forint, worst hit by the dollar's rally in the
past months, led the gains in the region.
    It traded at 315.25 against the euro at 0948 GMT, up 0.4
percent. It was slightly off 9-day highs hit against the euro
and the Romanian leu early in the session and a
2-week high against the zloty.
    "It may go to as high as 323, with other emerging market
currencies firming, even though there is no local cause," one
Budapest-based currency dealer said.
    "As long as international trends determine the direction ...
it may turn towards 330 again any time," the dealer added.
    Volatility could continue in emerging markets, BofA Merrill
Lynch analysts said in a note.
    "Focus will be now on U.S. payrolls and a potential
escalation of U.S.-China trade war," they added.
    Citigroup also said in a note that "risk appetite for EM
(emerging markets) assets will remain depressed".
    Most Central European countries have better current account
dynamics than many other emerging economies, but that has not
shielded their currencies from selling in the past months
whenever risk aversion led to dollar buying.
    Hungary's July trade surplus reported on Friday was slightly
below expectations and some analysts said the annual surplus
could narrow somewhat.
    But Takarekbank analyst Gergely Suppan said the forint
should firm in the next months as Hungary's trade and current
account surpluses could make it a net foreign lender by the end
of next year.
    One fixed income trader also said the country's debt could
drop as a big rise in the budget deficit in August reported on
Friday was caused by the pre-financing of European
Union-sponsored project.
    "In the next months and in 2019, billions of euros worth of
financing can start to flow in," the trader said, adding that
the deficit rise would not boost debt supply as it is financed
from strong issuance earlier this year.
    Hungary's 10-year bond yield, after rising about 20 basis
points since the middle of August, traded at 3.42 percent, down
from Thursday's 3.56 percent fixing.
    The Polish zloty firmed a third of percent against
the euro, while the leu continued to buck the regional
trend, and touched this month's weakest levels.
    Second-quarter Romanian figures confirmed a slowdown in
annual economic output growth to 4.1 percent. The details showed
that consumption drove growth, investments fell and imports rose
much faster than exports.
    Despite signs of overheating in the economy, the Romanian
central bank has signalled that not much more interest rate
tightening is in the pipeline as inflation is coming down fas
from June's 5.4 percent, the region's highest level.
            CEE       SNAPSHOT   AT                         
            MARKETS             1148 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.6850   25.7010    +0.06%    -0.56%
 crown      >                                       
 Hungary    <EURHUF=  325.1500  326.5000    +0.42%    -4.38%
 forint     >                                       
 Polish     <EURPLN=    4.3100    4.3251    +0.35%    -3.10%
 zloty      >                                       
 Romanian   <EURRON=    4.6415    4.6399    -0.03%    +0.82%
 leu        >                                       
 Croatian   <EURHRK=    7.4270    7.4297    +0.04%    +0.04%
 kuna       >                                       
 Serbian    <EURRSD=  118.2200  118.3000    +0.07%    +0.24%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1065.73  1063.580    +0.20%    -1.15%
 Budapest             37411.62  37241.82    +0.46%    -4.99%
 Warsaw                2286.00   2293.01    -0.31%    -7.12%
 Bucharest             8315.94   8321.09    -0.06%    +7.25%
 Ljubljana  <.SBITOP    852.23    857.87    -0.66%    +5.69%
 Zagreb                1806.13   1809.15    -0.17%    -1.99%
 Belgrade   <.BELEX1    724.27    724.71    -0.06%    -4.68%
 Sofia                  627.09    628.11    -0.16%    -7.43%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.4100    0.0710   +199bps     +7bps
   5-year   <CZ5YT=R    1.7640    0.0480   +200bps     +3bps
   10-year  <CZ10YT=    2.1150    0.0130   +174bps     -1bps
   2-year   <PL2YT=R    1.6400    0.0090   +222bps     +1bps
   5-year   <PL5YT=R    2.5860   -0.0130   +282bps     -3bps
   10-year  <PL10YT=    3.2600   -0.0260   +289bps     -5bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.88      2.01      2.12      1.51
 Hungary                  0.56      0.77      0.99      0.20
 Poland                   1.76      1.79      1.84      1.71
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto
Editing by Alison Williams)
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