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CEE MARKETS-Forint retreats as dovish Fed may cut rate hike odds

Sandor Peto

* Forint gives up some ground after dovish Fed comments

* Fed may cut odds of Hungary deposit rate hike-dealers

* Zloty sets 7-week high vs euro, but retreats

* Bond yields decline, stocks remain rangebound

BUDAPEST, March 21 (Reuters) - The forint continued to retreat on Thursday as a dovish guidance from the U.S. Federal Reserve reduced the odds of monetary tightening at the National Bank of Hungary's meeting next week. Lower projected U.S. interest rates and a weaker dollar are positive to currencies in the long term in the European Union's emerging markets, and expectations for dovish Fed comments helped them firm in the past weeks. The they also provide arguments for the Hungarian and the Czech central banks not to tighten policy on March 26 and 28, respectively. Investors have scaled back forecasts in the past weeks that the Czech bank would continue to raise rates at its next meeting to be held just a day before Britain is due to leave the European Union if Brexit is not delayed. But many market participants expect a rise in core inflation to force the Hungarian bank to deliver its first hike next week since it started to lower its interest rates more than seven years ago. An increase in the -0.15 percent overnight deposit rate is still a close call. "It got more uncertain after the Fed comments," one Budapest-based currency dealer said, adding that the European Central Bank could also delay its own tightening. The forint, after a rally in the past two months fueled by the monetary tightening expectations, traded at 314.1 against the euro at 0813 GMT, off Wednesday's 11-month high of 312.65. It started to retreat already before the Fed meeting. Dealers said concerns of Britain quitting the European Union without a deal and of Hungary's ruling party Fidesz leaving the bloc's center-right parliamentary grouping contributed to the weakening. The European People's Party suspended Fidesz until further notice late on Wednesday. The Czech crown also eased slightly to 25.651 against the euro. With the dollar quickly rebounding, the only currency in the region that benefitted from the Fed's dovishness was the most liquid unit, the zloty. It traded a touch firmer at 4.2838 versus the euro, off a 7-week high set at 4.2775 early on Thursday. The Polish central bank may keep interest rates on hold for years and that keeps the zloty's appreciation potential limited despite robust Polish economic figures, analysts said. "We change our view on a rate increase from the National Bank of Poland in 2019, as the ECB will be on hold for a long time and inflation remains stubbornly low," Nordea analysts said in a note. Stocks in the region were mostly rangebound, but the dovish Fed comments added fuel to a decline in government bond yields. Poland's 10-year bonds traded around a yield of 2.855, down 3 basis points.



Latest Previous Daily Changebid close change in 2019Czech EURCZK= 25.6510 25.6410 -0.04% +0.22%crown >Hungary <EURHUF= 314.1000 313.9500 -0.05% +2.22%forint >Polish <EURPLN 4.2838 4.2846 +0.02% +0.14%zloty >Romanian <EURRON= 4.7550 4.7550 +0.00% -2.12%leu >Croatian <EURHRK= 7.4128 7.4150 +0.03% -0.04%kuna >Serbian <EURRSD= 117.7400 117.8800 +0.12% +0.48%dinar >Note: calculated from 1800 CET

daily change

Latest Previous Daily Changeclose change in 2019Prague 1074.59 1073.370 +0.11% +8.92%


Budapest 41796.78 41964.35 -0.40% +6.79%Warsaw 2347.99 2351.83 -0.16% +3.13%Bucharest 8073.19 8018.97 +0.68% +9.34%Ljubljana <.SBITOP 875.76 875.76 +0.00% +8.89%>Zagreb 1787.48 1787.48 +0.00% +2.21%Belgrade <.BELEX1 728.10 728.10 +0.00% -4.41%


Sofia 588.88 588.88 +0.00% -0.94%


Yield Yield Spread Daily(bid) change vs Bund change


Czech spread


2-year <CZ2YT=R 1.7350 0.0000 +227bps +0bps


5-year <CZ5YT=R 1.8300 0.0020 +222bps +2bps


10-year <CZ10YT= 1.9390 -0.0030 +188bps +2bps

RR> Poland

2-year <PL2YT=R 1.6330 -0.1110 +217bps -11bps


5-year <PL5YT=R 2.2100 -0.0190 +260bps +0bps


10-year <PL10YT= 2.8990 -0.0030 +284bps +2bps




3x6 6x9 9x12 3M

interban k

Czech Rep 2.16 2.22 2.25 2.03



Hungary 0.32 0.47 0.65 0.14Poland 1.73 1.72 1.73 1.72

Note: FRA are for ask prices quotes



(Reporting by Sandor Peto Editing by Robin Pomeroy)