FX pressured by dollar's gains, higher U.S. Treasury yields

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BUDAPEST, Jan 18 (Reuters) - Central European currencies eased on Tuesday, pressured by a stronger dollar and rising U.S. Treasury yields as investors were positioning themselves for higher interest rates in the United States.

The Hungarian forint led losses as it eased 0.15% to 356.43 per euro. The currency is still the best performer among its CEE peers this year as it has gained more than 3.5% this month, buoyed by expectations for more rate hikes by the National Bank of Hungary.

The Hungarian central bank holds its next rate meeting on Jan. 25 where it is expected to raise interest rates further in a bid to fight surging inflation.

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"Core market yields are up as investors are looking ahead to U.S. rate hikes, which is not good for emerging markets," an FX trader in Budapest said.

German and U.S. bond yields were higher on Tuesday as recent comments by U.S. Federal Reserve officials have bolstered expectations for a March policy tightening.

Government bond yields in Hungary rose about 11 basis points at the long end of the curve, tracking core market yields, a fixed-income trader in Budapest said.

The yield on the 10-year bond was about 4.8% while the 20-year yield was 5.01%.

Elsewhere, the Czech crown edged down 0.07% to 24.438 per euro, trading in a tight range on the strong side of 24.50.

"The crown will get a new impulse likely only after the February rate setting meeting when the market will get a clearer idea of where the CNB is willing to raise its base rate," CSOB said in a note.

The Czech central bank will meet on Feb. 3 and is expected to tighten policy further as it fights inflation. Central bank analysts said on Monday inflation will jump to 9.2% in January and to 9.6% in February.

The Polish zloty eased 0.13% to trade at 4.5265 to the euro, giving up some of its gains from the previous session when it firmed to a four-month high.

Net inflation came in at 5.3% y/y in December in Poland, data showed on Monday, which further fuelled rate hike expectations.

Stocks in the region were mixed, with Budapest (.BUX) weakening 1.28% while Prague (.PX) edged 0.02% higher. Warsaw (.WIG20) eased 0.86%.

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Additional reporting by Jason Hovet in Prague; Editing by Subhranshu Sahu

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