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CEE MARKETS-Leu touches 4-year low, CEE units ease on risk aversion
June 15, 2017 / 9:56 AM / in 6 months

CEE MARKETS-Leu touches 4-year low, CEE units ease on risk aversion

    * Dollar rebound, profit-taking, politics weaken currencies
    * Romanian leu at 4-yr low amid fresh political uncertainty
    * Markets shrug off Czech PM giving up party leadership
    * Asset price losses moderate, local economies still strong

    By Sandor Peto
    BUDAPEST, June 15 (Reuters) - Central European currencies
eased on Thursday due to a combination of risk aversion,
profit-taking and political turbulence in Bucharest and Prague.
    In global markets, the U.S. Federal Reserve's interest rate
hike and guidance for more to come helped the dollar rebound
following a drop prompted by an unexpected slowing of U.S.
inflation and retail sales in May.
    Dollar buying often weakens currencies in emerging markets,
including the European Union's eastern members.
    "This is the classical correlation now... but it is not a
big weakening (in Central European exchange rates)," one
Budapest-based fixed income trader said.
    The zloty and the Czech crown are still
near multi-year highs and the forint near the 8-month
highs that they reached in recent weeks, supported by robust
growth and stability in the region's main economies.
    On Thursday the forint and the zloty, 
weakened by 0.3 percent against the euro by 0847 GMT, with the
Polish currency retreating behind the 4.2 line. Polish domestic
markets are closed due to a national holiday.
    The region's main stock indices eased by 0.4-0.5 percent,
tracking Western European peers as the U.S. data triggered some
concerns over global economic growth.
    Long-term Hungarian government bond yields were lower by a
few basis points from Wednesday's fixing, with 10-year paper
trading at around 2.92 percent.
    "The 10-year U.S. yield is also near (7-month) lows, despite
the hawkish Fed... and while they stay low, our yields will be
kept down too," said Gergely Urmossy, analyst of Erste in
    The crown and the leu shed 0.1 percent
against the euro.
    The crown, trading at 26.18, is still near its strongest
levels since 2013, buoyed by a robust economy and expectations
for central bank rate hikes later this year or next.
    Investors in the Czech Republic usually shrug off domestic
political news, like Prime Minister Bohuslav Sobotka's
announcement on Wednesday that he would step down as the leader
of his Social Democrat party.
    Romania's ruling Social Democrats, meanwhile, withdrew their
support from their own government late on Wednesday, leading to
political turmoil.
    President Klaus Iohannis urged the ruling party to resolve
the crisis with a no-confidence vote in parliament if Prime
Minister Sorin Grindeanu is unwilling to resign.
    The leu's reaction was muted, declining just 0.2 percent to
4.589, though this represented a new four-year low for a
currency that was underperforming the region even before the
latest political turmoil.
    The currency has been under pressure over concerns that the
leftist government's wage hikes and tax cuts could boost the
budget deficit and stoke inflation by next year.
                CEE MARKETS  SNAPSH   AT  1047 CET         
                             Latest  Previo  Daily   Change
                             bid     close   change  in
 Czech crown                 26.180  26.147  -0.13%   3.16%
                                  0       0          
 Hungary                     306.73  305.67  -0.34%   0.68%
 forint                          00      50          
 Polish zloty                4.2035  4.1929  -0.25%   4.77%
 Romanian leu                4.5873  4.5808  -0.14%  -1.14%
 Croatian kuna               7.3980  7.4005   +0.03   2.12%
 Serbian dinar               122.12  122.15   +0.02   1.01%
                                 00      00       %  
 Note: daily    calculated   previo  close   1800          
 change         from         us      at      CET     
                             Latest  Previo  Daily   Change
                                     close   change  in
 Prague                      1000.3  1000.1   +0.01   +8.54
                                  0       5       %       %
 Budapest                    35853.  35985.  -0.37%   +12.0
                                 61      82              3%
 Bucharest                   8440.1  8477.1  -0.44%   +19.1
                                  0       2              3%
 Ljubljana                   784.92  788.60  -0.47%   +9.38
 Zagreb                      1855.8  1854.5   +0.07  -6.97%
                                  4       9       %  
 Belgrade                    719.06  719.91  -0.12%   +0.24
 Sofia                       678.87  681.81  -0.43%   +15.7
                             Yield   Yield   Spread  Daily
                             (bid)   change  vs      change
                                             Bund    in
 Czech                                               spread
   2-year                    -0.091  -0.043   +057b   -7bps
   5-year                    -0.069   0.027   +035b   -1bps
   10-year                     0.86   0.077   +061b   +6bps
                FORWARD      RATE    AGREEMENT             
                             3x6     6x9     9x12    3M
 Czech Rep              <PR    0.32    0.39    0.47       0
 Hungary                <BU    0.36    0.22    0.28    0.15
 Note: FRA      are for ask                                
 quotes         prices                               
 (Reporting by Sandor Peto; Editing by Gareth Jones)

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