June 6, 2018 / 9:19 AM / a month ago

CEE MARKETS-FX retreat on euro strength, Poland seen holding rates

    * Currencies give up some ground on hawkish ECB signal
    * Polish cbank seen holding rates, reaffirming loose policy
    * Crown sets 3-week high before retreat on rate hike
expectations

    By Sandor Peto
    BUDAPEST, June 6 (Reuters) - The zloty led a retreat of
Central European currencies as the Polish central bank is
expected to reaffirm its loose policy stance on Wednesday, while
the European Central Bank gave hawkish signals.
    The euro jumped to a 10-day high against the dollar
after ECB officials said an end to the bank's bond buying
programme was plausible. 
    A rally of the dollar, backed by a rise in U.S. interest
rates, caused a sell-off in emerging markets last month,
knocking assets in the European Union's eastern wing to
multi-month or multi-year lows.
    The dollar's retreat on Wednesday did not help the region's
currencies because less monetary stimulus and the prospect of
higher rates in the euro zone make them relatively less
attractive.
    Regional currencies have regained some ground this week as
dollar bulls lost momentum and worries over political
uncertainty in Italy and Spain abated, but retreated on
Wednesday.
    The zloty eased 0.1 percent against the euro to
4.282 by 0823 GMT and the forint also eased slightly.
    Central bankers in both Poland and Hungary have signalled
that interest rates could stay on hold at record lows for years
and the Polish central bank is expected to repeat that after its
meeting on Wednesday, analysts said.
    UniCredit analysts said in a note that the bank could send
"dovish signals after inflation rebounded less than expected". 
    They said the bank's forecasts may show higher inflation for
the next 12 months due to a rise in crude prices and a weakened
zloty.
    The bank's current forecast for inflation to peak at 3
percent in 2020, in line with core inflation, may be too
optimistic, UniCredit said.
    "Rate hikes remain on the cards in the fourth quarter of
2019 if core inflation threatens to break out of the target
range in the coming years," the analysts added.
    Poland's 10-year government bond yield rose 2 basis points
to 2.23 percent, in line with their closely-watched U.S. peer.
    The Czech crown also retreated from a 3-week high
touched in early trade, but remained a touch firmer from
Tuesday, trading at 25.642 against the euro.
    The currency has been lifted by comments from Czech central
bank Governor Jiri Rusnok who said on Tuesday that the bank may
raise interest rates sooner than expected due to faster wage
growth and a weaker-than-expected crown.
    Czech markets have priced in a rate hike for October, but
the bank may increase its interest rates already at its August
meeting where it is due to present its quarterly forecasts, a
note from Komercni Banka traders said.    
            CEE        SNAPSHOT   AT                         
            MARKETS              1023 CET            
                       CURRENCI                              
                       ES                            
                       Latest    Previous  Daily     Change
                       bid       close     change    in 2018
 Czech                  25.6420   25.6515    +0.04%    -0.39%
 crown                                               
 Hungary               318.8300  318.6850    -0.05%    -2.48%
 forint                                              
 Polish                  4.2820    4.2783    -0.09%    -2.47%
 zloty                                               
 Romanian                4.6520    4.6520    +0.00%    +0.60%
 leu                                                 
 Croatian                7.3880    7.3835    -0.06%    +0.57%
 kuna                                                
 Serbian               117.9400  118.0400    +0.08%    +0.47%
 dinar                                               
 Note:      calculated from                1800 CET          
 daily                                               
 change                                              
                                                             
                       Latest    Previous  Daily     Change
                                 close     change    in 2018
 Prague                 1071.76  1073.240    -0.14%    -0.59%
                                        0            
 Budapest              36785.43  36677.56    +0.29%    -6.58%
 Warsaw                 2261.11   2255.95    +0.23%    -8.13%
 Bucharest              8270.85   8250.17    +0.25%    +6.67%
 Ljubljana               903.65    901.07    +0.29%   +12.06%
 Zagreb                 1832.81   1842.85    -0.54%    -0.55%
 Belgrade   <.BELEX15    744.78    746.20    -0.19%    -1.98%
            >                                        
 Sofia                   635.64    633.77    +0.30%    -6.17%
                       BONDS                                 
                       Yield     Yield     Spread    Daily
                       (bid)     change    vs Bund   change
                                                     in
 Czech                                               spread
 Republic                                            
   2-year   <CZ2YT=RR    1.0100    0.1250   +165bps    +11bps
            >                                        
   5-year   <CZ5YT=RR    1.4780    0.0670   +167bps     +1bps
            >                                        
   10-year  <CZ10YT=R    2.0290    0.0470   +161bps     -1bps
            R>                                       
 Poland                                                      
   2-year   <PL2YT=RR    1.5860    0.0030   +223bps     -2bps
            >                                        
   5-year   <PL5YT=RR    2.4180    0.0050   +261bps     -6bps
            >                                        
   10-year  <PL10YT=R    3.2260    0.0070   +280bps     -5bps
            R>                                       
            FORWARD    RATE      AGREEMEN                    
                                 T                   
                       3x6       6x9       9x12      3M
                                                     interban
                                                     k
 Czech Rep          <      1.13      1.27      1.39      0.00
            PRIBOR=>                                 
 Hungary            <      0.07      0.10      0.18      0.12
            BUBOR=>                                  
 Poland             <      1.76      1.75      1.81      1.70
            WIBOR=>                                  
 Note: FRA  are for ask prices                               
 quotes                                              
 **************************************************          
 ************                                        
 
 (Additional reporting by Jason Hovet in Prague and Agnieszka
Bartezcko in Warsaw
Editing by Alexandra Hudson)
  
 
 
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