July 13, 2018 / 9:51 AM / 3 months ago

CEE MARKETS-Fx weaker on dollar rise, Czechs see room for monetary tightening

    * Crown, forint, zloty weaken as dollar resumes gains
    * Czech central bank: weak crown creates room for tightening
    * Forint markets calmer but vulnerable to global mood
-traders 

    By Sandor Peto
    BUDAPEST, July 13 (Reuters) - Central Europe's most liquid
currencies eased on Friday as the dollar got a new boost from
Thursday's U.S. inflation data which reaffirmed expectations for
further gradual Fed rate hikes.
    With the dollar strengthening, the Czech crown
, the forint and the zloty eased
0.1-0.2 percent versus the euro by 0816 GMT.
    Regional stocks hardly changed, while government bonds
firmed slightly, tracking euro zone and U.S. peers.
    The crown, trading at 25.923, eased even though the Czech
central bank (CNB) reaffirmed in the minutes of its June 
meeting that the currency's weakness created room for further
monetary tightening.
    The dollar's rally in the past months has weighed on
emerging markets and central European units.
    The crown, supported by four CNB rate hikes since last
August, has eased by only 1.5 percent against the euro so far
this year, while the forint has shed 4.3 percent and the zloty
3.4 percent.
    But the Czech unit is far from the average 25 rate projected
by the CNB for this year.
    The last rate hike, delivered in June, has failed to lift
it. Some investors expect the bank to increase rates again as
early as next month to fight inflation, which rose further in
June to 2.6 percent in annual terms, above the CNB's 2 percent
target.
    Prague interbank rates and forward rate agreements
 have priced in more than a 50 percent chance that
another 25-basis-point hike in the CNB's 1 percent main rate
could come soon. 
    By lifting rates the Czech central bank seeks to create room
for easing in worse times. Other central banks in the region
have been trying to wait out until the dollar-driven waves
settle in global markets.
    Poland revised its June annual inflation figure a tick
higher on Friday, but at 2 percent it is still well within the
central bank's 1.5-3.5 percent target range.
    Serbia's central bank did not cut the region's highest
benchmark rate of 3 percent further at its meeting on Thursday,
eyeing global risks to the dinar, a less liquid
currency.
    It has strengthened half a percent so far this year. On
Friday it again resisted the tide, firming 0.1 percent to 117.95
versus the euro.     
    Hungary's central bank last month abandoned its pledge to
keep rates at record lows for years, but pressure on the forint,
which set record lows two weeks ago, could return if risk
aversion hits global markets again, dealers said.
    "Interest rates are so low that it is easy to hit the forint
if somebody wants to speculate," one currency dealer said.
    A fixed income trader said the spread of Hungary's 10-year
government bond yield, trading at 3.35 percent, stabilised at
about 20 basis points over the corresponding Polish bond.
    "If the central bank does not communicate smartly, next week
a selling wave may come as yields have come down a lot," he
said.
    The 10-year yield has declined about half a percentage point
from a 21-month highs set on July 3. 
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1016 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.9230   25.8890    -0.13%    -1.47%
 crown      >                                       
 Hungary    <EURHUF=  324.7500  324.2000    -0.17%    -4.26%
 forint     >                                       
 Polish     <EURPLN=    4.3207    4.3150    -0.13%    -3.34%
 zloty      >                                       
 Romanian   <EURRON=    4.6585    4.6600    +0.03%    +0.46%
 leu        >                                       
 Croatian   <EURHRK=    7.3948    7.3975    +0.04%    +0.48%
 kuna       >                                       
 Serbian    <EURRSD=  117.9500  118.1200    +0.14%    +0.47%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1085.44  1083.170    +0.21%    +0.68%
                                       0            
 Budapest             35698.28  35485.87    +0.60%    -9.34%
 Warsaw                2159.69   2161.20    -0.07%   -12.25%
 Bucharest             7942.76   7920.42    +0.28%    +2.44%
 Ljubljana  <.SBITOP    890.85    890.02    +0.09%   +10.48%
            >                                       
 Zagreb                1805.90   1807.51    -0.09%    -2.01%
 Belgrade   <.BELEX1    729.85    736.28    -0.87%    -3.94%
            5>                                      
 Sofia                  627.97    627.50    +0.07%    -7.30%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.2430   -0.0170   +191bps     -1bps
            R>                                      
   5-year   <CZ5YT=R    1.5930   -0.0280   +190bps     -2bps
            R>                                      
   10-year  <CZ10YT=    2.1550   -0.0330   +187bps     -2bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6360   -0.0030   +230bps     +0bps
            R>                                      
   5-year   <PL5YT=R    2.5320   -0.0050   +284bps     +1bps
            R>                                      
   10-year  <PL10YT=    3.1880   -0.0160   +291bps     +0bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.41      1.65      1.77      1.18
            <PRIBOR=                                
            >                                       
 Hungary                  0.60      0.86      1.10      0.28
                                                    
 Poland                   1.75      1.77      1.84      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
    
 (Additional reporting by Jan Lopatka in Prague)
  
 
 
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