Czech crown hemmed in narrow range around 27.5/EUR

    The Czech crown hugged a narrow 
range around 27.500 against the euro on Tuesday, and some 
analysts said the rally that sent it to lifetime peaks in late 
2006 appeared to have fizzled out. 
    The crown traded at 27.520 per euro  by 1450 GMT, 
having booked nearly 6 percent gain over last year to become the 
second best performing currency in central Europe after its 
Slovak counterpart. 
    It has retreated since peaking at an all-time high of 27.410 
per euro on Dec. 20 but rose to new lifetime highs around 20.650 
against the U.S. dollar on Tuesday. It was quoted around 20.700 
to the greenback  by 1450 GMT. 
    The market showed no immediate reaction to the news that the 
central state budget ended 2006 in a deficit of 97.30 billion 
crowns ($4.70 billion), below the finance ministry's latest 
forecast of a gap of more than 100 billion crowns. 
    "The pressure on the crown to firm is clearly losing 
momentum, so we should witness a reversal in the trend 
relatively soon," analysts at bank Ceska Sporitelna in Prague 
said in a report to clients. 
    They added the crown support levels of 27.600 and 27.750 per 
euro would be important to watch in the coming weeks, but that a 
weakening through the 27.750 level appeared unlikely for now. 
    Many analysts were puzzled by the currency's rise in late 
2006 and cautioned that a deteriorating external deficit spoke 
in favour of a weaker currency, or at least a dampening of its 
prospects for a further advance in 2007. 
    Central bankers have also said it was difficult to find 
economic reasoning for a further crown firming, and that balance 
of payments flows, particularly a deepening current account 
deficit, argued against any further gains in the currency. 
    The 12-month rolling current account deficit has doubled 
over a year ago to 4.6 percent of gross domestic product. 
    The crown's strength has led markets to expect stability of 
interest rates until at least March, following 75 basis points 
worth of hikes by the central bank between October 2005 and 
September 2006. 
 
 ----------------- MARKET SNAPSHOT AT 1450 GMT ----------------- 
 Crown/euro        last deals at 27.520 
 Crown/dollar                    at 20.703 bid 
  5-year yield due Oct 2010      3.38 pct bid 
 10-year yield due Jan 2016     3.72 pct bid 
  5-yr CZK/EUR mid yield spread   -54 bps 
 10-yr CZK/EUR mid yield spread   -22 bps 
    Current levels versus prior domestic close at 1500 GMT 
 --------------------------------------------------------------- 
 
 

[PRAGUE/Reuters/Finance.cz]