May 10, 2018 / 6:30 AM / 6 months ago

Crown, zloty seen firming in tandem, shrugging off dollar rally: Reuters poll

BUDAPEST (Reuters) - Global market jitters caused by the dollar’s rally are unlikely to leave a lasting mark on Central European currencies, and most are expected to strengthen in the next 12 months, a Reuters poll of 30 analysts found.

Czech Crown coins and notes are seen in this picture illustration taken April 1, 2017. REUTERS/David W Cerny/Illustration

Inflation has remained moderate despite robust economic growth and a surge in wages in most of Central Europe, which is closely tied to the euro zone, and less vulnerable to swings in commodities prices than other emerging regions.

The main currencies in the European Union’s eastern wing have hit multi-month lows against the euro this month as rising U.S. interest rates and a surge in the dollar triggered an asset sell-off in emerging markets.

Median forecasts in the May 3-9 survey showed the Czech crown EURCZK= would gain 3 percent against the euro relative to Wednesday’s close over the next year, to 24.844.

Poland’s zloty EURPLN= is seen firming 2.2 percent to 4.17 and the Hungarian forint EURHUF= could strengthen by 1.3 percent to 311.36.

Romania’s leu EURRON= and the Serbian dinar EURRSD=, which have outperformed regional peers this year, are seen shedding 0.9 percent and 1.3 percent, respectively.

The leu and dinar have some more room to ease in coming weeks according to the poll, while the crown, forint and zloty are expected to gain about one percent by the end of this month.

Analysts projected a similar course for the crown and zloty, even though monetary policy diverges in the two countries.

The Czech central bank (CNB), which has the lowest inflation target in the region, at 2 percent, began hiking interest rates in August last year.

Poland’s and Hungary’s central banks have signalled they could keep rates on hold at record lows for years.

Expectations for a CNB interest rate hike in November could boost the crown to a peak of 24.6 late this year, said Marek Drimal, senior economist at Komercni banka.

After a temporary retreat at the end of the year, “further appreciation (could come) in early 2019 due to more CNB hikes,” he added.

Even though Poland is unlikely to increase interest rates in that period, the zloty is seen gaining as much as the crown.

As the region’s most liquid currency, it has been hit hard by this month’s sell-off in emerging markets.

It has shed more than 2 percent since the start of the year. The forint eased 1.6 percent and the crown only 0.2 percent, while the leu - backed by central bank rate hikes - firmed 0.7 percent.

The dinar EURRSD has firmed 0.2 percent, buoyed by demand for lending, strong exports and investments, even though the central bank has repeatedly sold it in the market and cut its interest rates twice this year to stem the currency.

It delivered the last cut a month ago, surprising most analysts.

The 12-month forecast for the dinar’s exchange rate, 119.75, was slightly weaker than the rate projected in last month’s poll.

The Czech 12-month forecast was also slightly weaker than the previous projection, 24.775, but the zloty forecast remained unchanged. The forint forecast even firmed, to 311.36 from 313.

Since the last poll, Prime Minister Viktor Orban’s Fidesz party won elections with a landslide, and its two-thirds majority in parliament ensures continuity and stability in economic and monetary policy, analysts have said.

Reporting by Sandor Peto; Editing by Hugh Lawson

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