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CEE MARKETS-Currencies retreat as ECB is seen dovish

Sandor Peto

* Likely dovish ECB comments put lid on CEE currencies

* Currencies are off multi-week highs even though USD eases

* Serbian cbank seen keeping rates on hold

BUDAPEST, June 6 (Reuters) - Central European currencies retreated slightly from multi-week highs set in Wednesday's session as the European Central Bank's was expected to maintain its dovish tone at its meeting on Thursday. The forint and the leu firmed mildly from Wednesday's close, while the zloty and the Czech crown were a shade weaker. Trading was thin and rangebound. Dollar selling due to bets for Federal Reserve interest rate cuts strengthened the region's currencies earlier this week. The dollar continued to weaken on Thursday. But that no longer helped the region's currencies because a shift towards further monetary stimulus in the euro zone, where economies have slowed down, would disencourage central banks from fighting inflation by tightening their policy. "In the U.S. interest rate cuts are expected, and investors wonder if the ECB has to say something about that," one Budapest-based dealer said. A key market gauge of euro zone inflation expectations, the five-year, five-year forward inflation swap, on Thursday fell to within sight of record lows hit in 2016. In fast-growing Central Europe inflation has been picking up amid a surge in wages. Czech and Hungarian industrial output data and details of Romania's 5% first-quarter economic output growth suggested that the expansion is continuing. The industrial figures still did not help the crown firm further, with the uncertainty over the ECB in the backdrop.

"We see the policy setting as adequate now with no need for another hike in the coming months," said Erste analyst Jiri Polansky in a note. "Under the assumption of some form of the soft Brexit and no escalation of trade wars, the CNB could hike again in 2Q 2020, in our view. A Reuters poll of analysts projected gains for the crown in the coming year and a retreat for the dinar which has been sold by the Serbian central bank in the past months to stem its gains partly driven by demand for Serbian government bonds. The bank was expected to keep the region's highest benchmark rate on hold at 3% at its meeting on Thursday. Hungary's bi-weekly government bond auction was expected to draw robust demand on Thursday after they underperformed a slump in yields elsewhere in Europe in the past days, one trader said. In stock markets, Polish mobile operators Orange Polska and Play jumped 9.6% and 10.7%, respectively, after Play announced a tariff hike. The shares of Romanian investment fund Fondul Proprietatea rose by 0.9% to a record high. Last week the Romanian government watered down the share capital requirements of mandatory private pension funds.

CEE SNAPSHOT ATMARKETS 1018 CET

CURRENCI ES

Latest Previous Daily Changebid close change in 2019Czech <EURCZK= 25.6690 25.6550 -0.05% +0.15%crown >Hungary <EURHUF= 321.1500 321.3000 +0.05% -0.02%forint >Polish <EURPLN= 4.2782 4.2764 -0.04% +0.27%zloty >Romanian <EURRON= 4.7215 4.7220 +0.01% -1.43%leu >Croatian <EURHRK= 7.4150 7.4140 -0.01% -0.07%kuna >Serbian <EURRSD= 117.7200 117.8600 +0.12% +0.49%dinar >Note: calculated from 1800 CET

daily change

Latest Previous Daily Changeclose change in 2019Prague 1056.03 1052.680 +0.32% +7.04%

0

Budapest 41094.15 41073.62 +0.05% +5.00%Warsaw 2240.26 2223.27 +0.76% -1.60%Bucharest 8627.82 8615.37 +0.14% +16.85%Ljubljana <.SBITOP 875.64 881.34 -0.65% +8.88%>Zagreb 1859.42 1858.73 +0.04% +6.32%Belgrade <.BELEX1 731.59 733.01 -0.19% -3.95%

5>

Sofia 577.48 577.63 -0.03% -2.86%

BONDS

Yield Yield Spread Daily(bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=R 1.7080 0.1170 +237bps +12bps

R>

5-year <CZ5YT=R 1.5690 0.0650 +217bps +7bps

R>

10-year <CZ10YT= 1.6670 -0.0410 +189bps -4bps

RR> Poland

2-year <PL2YT=R 1.6550 0.0150 +232bps +2bps

R>

5-year <PL5YT=R 1.9780 -0.0220 +258bps -2bps

R>

10-year <PL10YT= 2.5200 -0.0270 +274bps -3bps

RR>

FORWARD RATE AGREEMEN

T

3x6 6x9 9x12 3M

interban k

Czech Rep 2.17 2.08 2.01 2.18

<PRIBOR=

>

Hungary 0.32 0.47 0.53 0.19Poland 1.72 1.71 1.69 1.72

Note: FRA are for ask prices quotes

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(Additional reporting by Aleksandar Vasovic in Belgrade and Agnieszka Barteczko in Warsaw Editing by Raissa Kasolowsky)