March 22, 2019 / 10:12 AM / 3 months ago

CEE MARKETS-Sterling helps, German PMI knocks down CEE currencies

    * Sterling rebound helps, German PMI knocks down CEE
    * Forint falls to 9-day low from Thursday's 11-month high
    * Weak German figures question Hungarian central bank

    By Sandor Peto
    BUDAPEST, March 22 (Reuters) - Central European currencies
reversed early gains on Friday after weak manufacturing data
from Germany, a motor of economic growth in the European Union,
knocked the euro down.
    Germany is the biggest export market of economies in the
EU's eastern wing.
    Slowdown in Germany cuts the odds of monetary tightening in
the euro zone, which in turn reduces pressure on rate setters in
Central Europe to raise their own rates.
    Regional currencies firmed in early trade as the sterling
recovered overnight after the EU gave British Prime Minister
Theresa May a two-week reprieve, until April 12, to decide how
to leave the EU.
    But regional currencies sharply changed their direction
after the euro plunged due to the March German figures
which showed a contraction in manufacturing for the third month
in a row.
    Sentiment in emerging markets also soured due to a plunge by
the lira amid political tension between Turkey and
the United States, one Budapest-based dealer said.
    The forint was worst hit in Central Europe.
    It weakened by 0.4 percent to 316.1 against the euro by 0925
GMT. That was a 9-day low, and more than one percent weaker then
   an 11-month high set on Thursday at 312.65.
    It is still 2.6 percent firmer from this year's lows after a
rally in the past two months due to expectations that a rise in
core inflation would lead to the first monetary tightening since
2011 at the Hungarian central bank's (NBH) March 26 meeting.
    The majority of analysts in a March 14-21 Reuters poll
projected an increase in the bank's -0.15 percent overnight
deposit rate.
    A dovish guidance from the Federal Reserve on Wednesday and
Friday's weak German data, however, question that, dealers said.
    "Whatever the NBH will do on Tuesday, will not be more than
symbolic," another Budapest-based currency dealer said.
    A decline in government bond yields in developed markets is
likely to support a further fall in Hungarian market yields
after a slump in the past days, one fixed income trader said.
    "10-year swaps are at 2.05 percent, down from 2.3... and may
soon dip below 2 percent," the trader added.
    Elsewhere, the zloty and the Czech crown
eased 0.2 percent against the euro.
    Forward rate agreements price in no change in Czech central
bank (CNB) interest rates at its March 28 meeting, but they see
a 50 percent chance that rate increases could continue in the
summer months.
    Polish government bond yields dropped by 1-2 basis points,
with the 10-year paper trading at 2.8665 percent. 
            CEE       SNAPSHOT   AT                         
            MARKETS             1025 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.7100   25.6710    -0.15%    -0.01%
 crown      >                                       
 Hungary    <EURHUF=  316.1000  314.8500    -0.40%    +1.58%
 forint     >                                       
 Polish     <EURPLN=    4.2928    4.2850    -0.18%    -0.07%
 zloty      >                                       
 Romanian   <EURRON=    4.7570    4.7570    +0.00%    -2.17%
 leu        >                                       
 Croatian   <EURHRK=    7.4195    7.4153    -0.06%    -0.13%
 kuna       >                                       
 Serbian    <EURRSD=  117.8600  117.9600    +0.08%    +0.37%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1077.77  1078.390    -0.06%    +9.25%
 Budapest             41845.22  41955.75    -0.26%    +6.91%
 Warsaw                2338.03   2359.02    -0.89%    +2.70%
 Bucharest             8067.42   8047.89    +0.24%    +9.26%
 Ljubljana  <.SBITOP    874.58    875.50    -0.11%    +8.74%
 Zagreb                1790.26   1783.77    +0.36%    +2.37%
 Belgrade   <.BELEX1    729.97    731.72    -0.24%    -4.16%
 Sofia                  585.57    585.98    -0.07%    -1.50%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.8470    0.0820   +241bps    +10bps
   5-year   <CZ5YT=R    1.8100    0.0150   +223bps     +4bps
   10-year  <CZ10YT=    1.8880    0.0140   +188bps     +5bps
   2-year   <PL2YT=R    1.6410   -0.1130   +220bps    -10bps
   5-year   <PL5YT=R    2.2120   -0.0260   +263bps     +0bps
   10-year  <PL10YT=    2.8840   -0.0210   +288bps     +1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.15      2.19      2.20      2.03
 Hungary                  0.29      0.45      0.61      0.14
 Poland                   1.74      1.74      1.74      1.72
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto)
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