Czech crown nears 2-week high, eyes inflation data

...data releases next week which are expected to help clear up the outlook for monetary policy.

The crown traded at 27.885 per euro by 1400 GMT, but activity was low due to holidays in many countries. Czech financial markets are closed for a public holiday on Monday and reopen on Tuesday.

Central bank (CNB) policymakers warned in minutes from their March 29 meeting that labour shortages could fuel inflation as booming economic growth is drying up the pool of available workers and risks pushing salaries higher [ID:nL06735130].

March consumer inflation, due out on Tuesday along with March jobless numbers, are expected to extend a gradual up-tick but remain below the central bank's target, confirming the low-inflation nature of the country's robust economic expansion.

The consumer price index (CPI) is expected to show a rise of 0.3 percent in March from February to take the annual inflation rate to 1.9 percent, according to the median forecast of 14 analysts polled by Reuters .

"The data will likely confirm rising inflationary pressures and support market expectations about an interest rate increase this year," said ING economist Vojtech Benda.

He said robust exports and industrial output growth should support the crown and help it stay on a firm footing between 27.800 and 27.950 against the euro.

Other analysts have said low yields were reducing the allure of holding Czech crowns and conversely, could lead investors to re-build selling positions in the currency to raise funds for carry trade investments in high-yielding emerging market assets.

At 2.50 percent, the Czech policy rate is the lowest in the European Union, and the crown is one of the world's three most popular funding currencies alongside the Japanese yen and Swiss franc.

----------------- MARKET SNAPSHOT AT 1406 GMT ----------------- Crown/euro last deals at 27.885 (-0.02 pct) Crown/dollar at 20.859 bid (-0.56 pct)

5-year yield due Oct 2010 3.44 pct bid 10-year yield due Jan 2016 3.90 pct bid

5-yr CZK/EUR mid yield spread -65 bps 10-yr CZK/EUR mid yield spread -19 bps

Current levels versus prior domestic close at 1500 GMT ---------------------------------------------------------------