Czech crown opens weaker, seen on back foot

...central bank policy statements and an unclear political outlook.

The crown traded at 27.545 per euro at 0826 GMT, down from 27.520 late in the previous session. It has retreated since peaking at an all-time high of 27.410 per euro on Dec. 20.

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.

"Today (Thursday), we expect a slight weakening of the crown," analysts at bank CSOB said in a morning note to investors.

Central bankers have also said it was difficult to find economic reasoning for a further crown firming, and on Wednesday Governor Zdenek Tuma was quoted as saying he saw no reason for the crown to "jump significantly" in the space of a few weeks, reiterating his previous stance on the currency.

Tuma's comments were followed by the release of the minutes from a Dec. 20 policy meeting where CNB policymakers agreed the crown posed a "considerable downside risk" to inflation, which now looked likely to be slower than the bank had forecast.

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 -- along with central bank comments -- has led markets to expect interest rate stability until at least March, following 75 basis points' worth of hikes by the central bank between October 2005 and September 2006.

----------------- MARKET SNAPSHOT AT 0826 GMT ----------------- Crown/euro last deals at 27.545 (-0.18 pct) Crown/dollar at 20.946 bid (-0.57 pct)

5-year yield due Oct 2010 3.29 pct bid (0 bps) 10-year yield due Jan 2016 3.72 pct bid (2 bps)

5-yr CZK/EUR mid yield spread -64 bps (vs -64) 10-yr CZK/EUR mid yield spread -23 bps (vs -25)

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

[PRAGUE/Reuters/Finance.cz]