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CEE MARKETS-Currencies jump on Fed rate outlook, EU warning to Italy

Sandor Peto and Jason Hovet

* U.S. rate cut bets, EU warning to Italy help CEE currencies

* Polish central bank reiterates rates could stay stable

* Czech, Hungarian, Romanian retail sales continue to surge

* Polish 10-year bond yield hits 4-year low, tracking Bunds

(Recasts with Polish central bank meeting, new comments, bonds, Polish stock exchange) BUDAPEST/PRAGUE, June 5 (Reuters) - Central European currencies extended their gains on Wednesday as expectations for Federal Reserve interest rate cuts hit the dollar and a European Commission warning to Italy over its debt weighed on several crosses of the euro. The region's main currencies set multi-week highs, and Romania's leu a 4-1/2-month high against the euro. The Czech crown, Hungary's forint and the leu firmed in tandem by 0.3% by 1502 GMT. The zloty also gained 0.1%, even though Polish central bank governor Adam Glapinski, at a news conference after a policy meeting, crushed any expectations that a rise in inflation in May might have prompted a less dovish tone. He reiterated that there may be no need to change rates until 2022. At Wednesday's policy meeting, the bank left the benchmark interest rate unchanged at 1.5 percent, as expected. Poland's 10-year government bond yield fell 7 basis points to a 4-year low of 2.5275%, tracking a plunge of the corresponding Bund yield to record lows. Bond yields fell across Europe, except for Italy, and in the United States, driven by bets for lower Fed rates, which weakened the greenback. Dollar-selling often helps Central European currencies. "I do not say that a parallel weakness of the euro and the dollar is not a somewhat confusing backdrop," one Budapest-based dealer said. "But the dollar has been weakened by Fed expectations rather than global growth worries, while global inflation is not on the rise... That is a good combination for currencies in emerging economies that have no growth problems," the dealer added. Surging wages help Central European countries maintain faster growth than the euro zone. Annual growth in retail sales picked up to about 7% in the Czech Republic and Hungary, and slowed to that pace in Romania, according to figures released on Wednesday. The robust growth maintains upwards pressure on consumer prices. One trader said there may be scope "for a possible rate hike" in the Czech Republic after strong economic data this week buoyed the crown after weeks of losses. But traders said regional currency markets remained vulnerable amid continued fears of an escalating global trade war between the United States and other countries. Weak U.S. payroll figures released on Wednesday underlined those risks. Investors are also concerned about demand in China, the world's second biggest economy which accounts for half of global consumption of industrial metals. Central Europe is not heavily exposed in that sector, but shares in Polish copper producer KGHM plunged 3.4% on Wednesday, a key factor in the overall 0.5% fall in Warsaw's bluechip stock index.

CEE SNAPSHOT ATMARKETS 1702 CET

CURRENCI ES

Latest Previous Daily Changebid close change in 2019Czech <EURCZK= 25.6550 25.7400 +0.33% +0.20%crown >Hungary <EURHUF= 321.2500 322.0400 +0.25% -0.05%forint >Polish <EURPLN= 4.2748 4.2796 +0.11% +0.35%zloty >Romanian <EURRON= 4.7200 4.7325 +0.26% -1.40%leu >Croatian <EURHRK= 7.4150 7.4185 +0.05% -0.07%kuna >Serbian <EURRSD= 117.7500 117.8700 +0.10% +0.47%dinar >Note: calculated from 1800 CET

daily change

Latest Previous Daily Changeclose change in 2019Prague 1052.68 1053.830 -0.11% +6.70%

0

Budapest 40948.92 41157.02 -0.51% +4.62%Warsaw 2223.27 2233.75 -0.47% -2.34%Bucharest 8615.37 8472.73 +1.68% +16.68%Ljubljana <.SBITOP 881.34 883.33 -0.23% +9.58%>Zagreb 1858.73 1846.80 +0.65% +6.29%Belgrade <.BELEX1 733.01 733.50 -0.07% -3.77%

5>

Sofia 577.63 580.11 -0.43% -2.83%

BONDS

Yield Yield Spread Daily(bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=R 1.5990 0.0020 +226bps +3bps

R>

5-year <CZ5YT=R 1.5010 0.0110 +210bps +4bps

R>

10-year <CZ10YT= 1.7080 0.0620 +193bps +8bps

RR> Poland

2-year <PL2YT=R 1.6400 -0.0380 +231bps -1bps

R>

5-year <PL5YT=R 1.9950 -0.0820 +260bps -5bps

R>

10-year <PL10YT= 2.5470 -0.0760 +277bps -6bps

RR>

FORWARD RATE AGREEMEN

T

3x6 6x9 9x12 3M

interban k

Czech Rep 2.18 2.09 2.01 2.18

<PRIBOR=

>

Hungary 0.30 0.43 0.55 0.19Poland 1.74 1.71 1.70 1.72

Note: FRA are for ask prices quotes

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(Additional reporting Karin Strohecker in London, Editing by Gareth Jones)