July 8, 2019 / 9:34 AM / 8 months ago

CEE MARKETS-Currencies on weaker footing after US data, inflation eyed

    By Krisztina  Than
    BUDAPEST, July 8 (Reuters) - Central European currencies
started Monday on a weaker footing after strong payroll data in
the U.S. on Friday dampened rate cut hopes and boosted the
dollar, which weighed on riskier assets in the emerging region
of the European Union.
    The strength of the dollar has kept a lid on Central
European currencies for some time.
    "We assume that thanks to Friday's solid payroll data and
signals from the Fed, expectations for an interest rate cut in
the U.S. in July will fall, which will be positive for the
dollar and negative for the zloty and other CEE currencies,"
said Marcin Sulewski, economist at Santander Bank Polska. 
    "In the next few days we expect some profit-taking on the
zloty, supported by an expected strengthening of the dollar."
    Given the strength shown in U.S. jobs data, investors now
expect U.S. Federal Reserve Chairman Jerome Powell to go slow on
rate cuts this year.
    "Most emerging market currencies weakened on Friday and the
forint was no exception," brokerage Equilor said in a note. 
    If the forint weakens beyond a support level of 324.40, it
said, then it could ease further towards 325 versus the euro,
and then even to 327.50.
    At 0800 GMT, the forint traded at 324.24, steady
from Friday, but down one percent so far this year.
    Besides signals from the Fed, investors in Central Europe
will be also closely watching inflation data coming out this
week in the region.
    A dovish shift by the European Central Bank has reduced
pressure on the region's monetary authorities in recent weeks to
tighten their own policy, even though inflation has picked up
this year. 
    In its fresh inflation report published on Monday, the
Polish central bank sees inflation rising to 2.9% next year from
2% this year, while it projects that economic growth will slow
to 4% from 4.5%.
    Hungary's annual headline inflation is expected to have
slowed to 3.6% in June from 3.9% in May, according to a Reuters
poll of analysts. The data is due to be published on Tuesday.
    "The Hungarian labour market remains tight but slowing
growth and disinflationary pressure from abroad should
contribute to a moderation in the middle of 2020," Morgan
Stanley said in a note.
    Late last month the Hungarian central bank left interest
rates unchanged and kept its dovish stance despite raising its
inflation forecasts for the coming years, after the European
Central Bank (ECB) flagged further easing. 
    Deputy Governor Marton Nagy has told Reuters in an interview
that the economy is in a high-pressure phase with strong wage
and output growth, but the risk of overheating was very low
despite inflation nearing the top of its 2-4% target range.
    "We think a more dovish ECB will delay the process of
(Hungarian monetary policy) normalisation," Morgan Stanley said.
                   CEE       SNAPSHO   AT  1000                    
                   MARKETS   T        CET                
                             Latest   Previous   Daily   Change
                             bid      close      change  in 2019
 EURCZK=  Czech    <EURCZK=  25.4920    25.5045   +0.05      +0.84%
          crown    >                                  %  
 EURHUF=  Hungary  <EURHUF=  324.240   324.3600   +0.04      -0.97%
          forint   >               0                  %  
 EURPLN=  Polish   <EURPLN=   4.2517     4.2515  -0.01%      +0.89%
          zloty    >                                     
 EURRON=  Romania  <EURRON=   4.7240     4.7243   +0.01      -1.48%
          n leu    >                                  %  
 EURHRK=  Croatia  <EURHRK=   7.3950     7.3980   +0.04      +0.20%
          n kuna   >                                  %  
 EURRSD=  Serbian  <EURRSD=  117.640   117.7000   +0.05      +0.56%
          dinar    >               0                  %  
          Note:    calculated from               1800              
          daily                                  CET     
                             Latest   Previous   Daily   Change
                                      close      change  in 2019
 .PX      Prague             1052.90  1052.1000   +0.08      +6.72%
 .BUX     Budapes            41007.7   41016.65  -0.02%      +4.77%
          t                        5                     
 .WIG20   Warsaw             2340.01    2342.01  -0.09%      +2.78%
 .BETI    Buchare            8908.04    8967.08  -0.66%     +20.64%
 .SBITOP  Ljublja  <.SBITOP   886.90     890.20  -0.37%     +10.28%
          na       >                                     
 .CRBEX   Zagreb             1888.77    1895.96  -0.38%      +8.00%
 .BELEX1  Belgrad  <.BELEX1   742.71     743.57  -0.12%      -2.49%
 5        e        5>                                    
 .SOFIX   Sofia               580.87     580.70   +0.03      -2.29%
                             Yield    Yield      Spread  Daily
                             (bid)    change     vs      change in
          Czech                                          spread
 CZ2YT=R           <CZ2YT=R   1.5170     0.0370   +226b       +4bps
 R        2-year   R>                                ps  
 CZ5YT=R           <CZ5YT=R   1.3470     0.1090   +203b      +11bps
 R        5-year   R>                                ps  
 CZ10YT=           <CZ10YT=   1.4690    -0.0190   +185b       +0bps
 RR       10-year  RR>                               ps  
 PL2YT=R           <PL2YT=R   1.6190    -0.0950   +236b       -9bps
 R        2-year   R>                                ps  
 PL5YT=R           <PL5YT=R   1.9000     0.0040   +258b       +1bps
 R        5-year   R>                                ps  
 PL10YT=           <PL10YT=   2.2770    -0.0100   +265b       +1bps
 RR       10-year  RR>                               ps  
                   FORWARD   RATE     AGREEMENT                    
                             3x6      6x9        9x12    3M
          Czech                 2.17       2.07    1.98        2.17
          Rep      <PRIBOR=                              
          Hungary               0.30       0.38    0.46        0.25
          Poland                1.73       1.72    1.70        1.72
          Note:    are for ask                                     
          FRA      prices                                

 (Reporting by Krisztina Than, additional reporting by Anna
Wlodarczak-Semczuk in Warsaw
Editing by Gareth Jones)
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