March 21, 2019 / 8:56 AM / a month ago

CEE MARKETS-Forint, yields fall as dovish Fed may curb rate hike appetite

    * Forint gives up some ground after dovish Fed comments
    * Fed may cut odds of Hungary deposit rate hike -dealers
    * Hungarian 5-year bonds yield falls to 9-month low
    * Hard Brexit, U.S. economic slowdown are risks -analysts

 (Recasts with fall in Hungarian bond yields, new dealer and
analyst comments)
    By Sandor Peto
    BUDAPEST, March 21 (Reuters) - The forint and Hungarian
government bond yields fell on Thursday as the U.S. Federal
Reserve's dovish forward guidance reduced expectations the
National Bank of Hungary (NBH) will tighten monetary policy at
its meeting next week. 
    A lower trajectory for U.S. interest rates and a weaker
dollar are generally positive for currencies in the European
Union's emerging east but they may dissuade the Hungarian and
Czech central banks not to tighten policy when their
policymakers meet on March 26 and 28, respectively. The dollar
 meanwhile regained composure on Thursday.
    Investors have in recent weeks scaled back forecasts that
the Czech bank would raise rates again at its next meeting, to
be held just a day before Britain will leave the EU if Brexit is
not delayed.
    But some analysts in a Reuters poll forecast that a rise in
core inflation will force the Hungarian central bank to hike
next week for the first time since it started to lower its base
rate in 2012. It may raise its 0.15 percent
overnight deposit rate.
    After a rally in the last two months fuelled by the monetary
tightening expectations, the forint was trading at
314.25 against the euro at 1350 GMT, weaker by 0.1 percent and
off Wednesday's 11-month high of 312.65.
    Hungarian government bond yields fell 8-10 basis points,
more than their regional peers or German Bunds, with the
five-year benchmark paper trading at 2.05 percent, a nine-month
low.
    "The Fed surprised on the dovish side ... and people wonder
now if the NBH will back out from tightening," one
Budapest-based trader said.
    "In the case of Polish yields (which did not drop), the
central bank there had not been expected to tighten policy
anyway," the trader added.
     The zloty was the only currency in the region that
benefited from the dovish Fed comments. It touched a seven-week
high of 4.2775 against the euro before trading at 4.2781, firmer
by 0.15 percent on the day.
     After a batch of strong economic data this week, Poland on
Thursday reported a robust rise in retail sales in February.
     The data confirming flourishing consumption suggest strong
economic growth of 4.7-4.8 percent in the first quarter, Erste
analyst Katarzyna Rzentarzewska said in a note.
     But the risks of a recession in the United States and a
chaotic no-deal Brexit are likely to keep a lid on Central
European currencies, Rabobank analysts said in a note.
     "In the coming days market confidence that the negative
scenario of a hard Brexit will be avoided could weaken
substantially, causing a sell-off in the Polish zloty and its
peers versus the dollar and to a lesser degree against the
euro," they said. 
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1450 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.6510   25.6410    -0.04%    +0.22%
 crown      >                                       
 Hungary    <EURHUF=  314.2500  313.9500    -0.10%    +2.18%
 forint     >                                       
 Polish     <EURPLN=    4.2781    4.2846    +0.15%    +0.27%
 zloty      >                                       
 Romanian   <EURRON=    4.7575    4.7550    -0.05%    -2.18%
 leu        >                                       
 Croatian   <EURHRK=    7.4180    7.4150    -0.04%    -0.11%
 kuna       >                                       
 Serbian    <EURRSD=  117.9000  117.8800    -0.02%    +0.34%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1076.17  1073.370    +0.26%    +9.08%
                                       0            
 Budapest             41861.89  41964.35    -0.24%    +6.96%
 Warsaw                2353.58   2351.83    +0.07%    +3.38%
 Bucharest             8066.67   8018.97    +0.59%    +9.25%
 Ljubljana  <.SBITOP    875.50    875.76    -0.03%    +8.86%
            >                                       
 Zagreb                1785.80   1787.48    -0.09%    +2.12%
 Belgrade   <.BELEX1    731.72    728.10    +0.50%    -3.93%
            5>                                      
 Sofia                  587.89    588.88    -0.17%    -1.11%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.7960    0.0200   +234bps     +3bps
            R>                                      
   5-year   <CZ5YT=R    1.7940   -0.0330   +218bps     -1bps
            R>                                      
   10-year  <CZ10YT=    1.8820   -0.0600   +184bps     -2bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6330   -0.1110   +217bps    -10bps
            R>                                      
   5-year   <PL5YT=R    2.2330    0.0040   +262bps     +3bps
            R>                                      
   10-year  <PL10YT=    2.9030    0.0010   +286bps     +4bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                2.16      2.22      2.25      2.03
            <PRIBOR=                                
            >                                       
 Hungary                  0.31      0.47      0.63      0.14
                                                    
 Poland                   1.73      1.73      1.74      1.72
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
 (Reporting by Sandor Peto
Editing by Catherine Evans)
  
 
 
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