June 7, 2018 / 9:18 AM / 9 months ago

CEE MARKETS-Dollar selling boosts CEE fx, Serbian cbank seen holding fire

    * Dollar retreat helps CEE currencies regain ground
    * Serbian central bank not seen cutting rates further
    * Bond yield rise on ECB comments may dent demand at
Budapest sale
    * Czech central banker comments support crown

    By Sandor Peto and Aleksandar Vasovic
    BUDAPEST/BELGRADE, June 7 (Reuters) - The dollar's retreat
on global markets helped Central European currencies firm on
Thursday, including the dinar as Serbia's central bank was
expected not to cut interest rates further at its meeting.
    Regional government bonds weakened, tracking euro zone peers
hit by comments from European Central Bank Chief Economist Peter
Praet, who said on Wednesday that inflation was on its way back
to target and that the ECB might reveal more about the end of
its asset buying programme next week.
    Less stimulus from the ECB could be negative for assets in
Central European markets which are tightly integrated with the
euro zone. But regional currencies still firmed.
    "This is because their strengthening is about the dollar
rather than the euro, as the dollar has retreated in all crosses
quite significantly in the past day," one Budapest-based fixed
income trader said.
    "That is not a surprise after its recent surge ... investors
adjust positions waiting for new information from the Fed's
(Federal Reserve) and the ECB's meetings next week."
    Reuters surveys showed on Thursday that the dollar's
dominance could soon fade, while Central Europe's most liquid
units could strengthen over the next year. 
    The region's main currencies hit multi-month lows against
the euro last month as investors rearranged positions amid a
global dollar rally. 
    They have recouped only part of the ground since then, and
further gains are possible if the dollar does not resume its
rally, market participants said.
    The forint and the crown firmed 0.2
percent by 0822 GMT, with the Czech unit also helped by comments
from central bankers suggesting an earlier-than-expected
interest rate hike to fight inflation. 
     The zloty gained 0.1 percent even though the
Polish central bank reaffirmed its loose policy stance on
Wednesday. Hungary's central bank has also pledged to keep rates
at record lows for years.
    Hungary's 10-year bond yield tracked Bunds, rising 8 basis
points from Wednesday's fixing to 3.1 percent, while Poland's
corresponding yield rose 3 basis points to 3.26 percent.
    The yield rise may cut demand at the Hungarian government's
bi-weekly bond auction on Thursday, one Budapest-based
trader said.
    The dinar firmed 0.1 percent to 117.94 against the
    Serbian inflation is running well below target, but the
central bank is unlikely to cut interest rates further at
Thursday's meeting, to spare its ammunition for the future,
analysts said.
    The dinar has shrugged off the dollar rally which hit the
region's more liquid units, and the Serbian central bank has had
to prevent a further rise using rate cuts and repeated market
interventions in the past months.
    The dinar has been strengthened by sound exports,
remittances from over a million Serbs working in the European
Union and optimism over the economy which has fuelled demand for
dinar-denominated government papers.     
            CEE       SNAPSHOT   AT                         
            MARKETS             1022 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.6370   25.6790    +0.16%    -0.37%
 crown      >                                       
 Hungary    <EURHUF=  317.5000  318.1300    +0.20%    -2.07%
 forint     >                                       
 Polish     <EURPLN=    4.2600    4.2630    +0.07%    -1.96%
 zloty      >                                       
 Romanian   <EURRON=    4.6565    4.6560    -0.01%    +0.50%
 leu        >                                       
 Croatian   <EURHRK=    7.3860    7.3870    +0.01%    +0.60%
 kuna       >                                       
 Serbian    <EURRSD=  117.9400  118.0500    +0.09%    +0.47%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1079.20  1073.270    +0.55%    +0.10%
 Budapest             37474.68  37157.46    +0.85%    -4.83%
 Warsaw                2281.68   2256.67    +1.11%    -7.29%
 Bucharest             8257.39   8289.31    -0.39%    +6.50%
 Ljubljana  <.SBITOP    906.27    907.58    -0.14%   +12.39%
 Zagreb                1823.89   1829.77    -0.32%    -1.03%
 Belgrade   <.BELEX1    743.15    743.97    -0.11%    -2.19%
 Sofia                  632.25    634.18    -0.30%    -6.67%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.0050   -0.0220   +163bps     -2bps
   5-year   <CZ5YT=R    1.4730   -0.0080   +161bps     -2bps
   10-year  <CZ10YT=    2.0530    0.0240   +156bps     -1bps
   2-year   <PL2YT=R    1.5940    0.0130   +222bps     +2bps
   5-year   <PL5YT=R    2.4660    0.0260   +261bps     +1bps
   10-year  <PL10YT=    3.2670    0.0280   +277bps     +0bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.15      1.32      1.43      0.91
 Hungary                  0.21      0.28      0.37      0.12
 Poland                   1.76      1.77      1.81      1.70
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto
Editing by Catherine Evans)
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