(adds details, fixed income, updates prices)
By Marius Zaharia
BUCHAREST, Dec 17 (Reuters) - Central European currencies
weakened early on Wednesday and are seen falling further on
expectations of rate cuts in the region, after a brief overnight
jump triggered by a surprise rate cut in the U.S.
The U.S. Federal Reserve on Tuesday chopped its benchmark
rate to as low as zero and pledged more action to treat a
deepening recession [].
The Czech central bank is also expected to cut rates, by 50
basis points to 2.25 percent on Wednesday, back to mid-2006
levels and below the euro zone's 2.5 percent in a move aimed at
easing pressure on the export-driven economy [].
The crown jumped overnight from its lowest level since
mid-January hit on Tuesday, benefiting from the surprising Fed
move, but it pulled back to this week's weakening trend caused
by a deteriorating macroeconomic outlook.
"The Czech crown below 26 is just nonsense under current
conditions," said one trader. "People just utilised the occasion
(overnight jump) to buy euro/Czech crown or dollar/Czech crown,
and cover shorts or build long (euro) positions."
Money market rates slipped as some in the market bet on a
Czech rate move bigger than the 50 basis points priced in.
"Interest rate swaps are under pressure after the Fed
action," a money market dealer said, adding a 75 basis point cut
from the Czech bank could be possible.
By 0930 GMT, the Czech crown <EURCZK=> traded 0.4 percent
down from Tuesday's close, at 26.465 per euro and more than one
percent down from the opening at 26.00.
In Hungary, where the central bank is also expected to trim
rates further on Monday from 10.5 percent at present, the forint
<EURHUF=> traded flat at 267.4 per euro.
"After the Fed rate cut (the forint) firmed past 267," a
dealer said. "I think the range will be 267-270 today, and I
don't think the unit will firm now as rate cut expectations are
strengthening ahead of Monday's rate decision."
Hungary posted a gross wage growth of 8.5 percent on the
year in October [], but analysts said the data were
neutral for the rate outlook as the economy is heading for
recession and should worry less about inflationary pressures.
The Polish zloty, which took a heavy beating in the past
weeks because of worries over the corporate hedging contracts,
was 0.3 percent weaker at 4.088 per euro. Poland is also
expected to cut rates next week.
In Romania, the leu traded near a two-month low hit earlier
this week triggered by political uncertainty and dealers said
investors feared central bank intervention. The leu <EURRON=>
traded 0.15 percent higher at 3.928 per euro.
Meanwhile, Romanian Democrat-Liberals and Social Democrats,
who have forged a governing coalition, meet to discuss the
structure of the cabinet government and share portfolios, after
posting their draft programme on Tuesday [].
In fixed income markets, Hungarian bond yields rose slightly
in quiet trade, while in Poland, yields dropped slightly.
"The yield bonds dropped mainly on the short end of the
curve because of the Fed decision," said Maciej Slomka head of
bond dealers at Pekao SA. "The upcoming bond tender will be a
test for the market ... and the weaker zloty is a risk factor."
Poland is tendering five- and ten-year bonds worth about 4
billion zlotys together. Romania also plans to sell 500 million
lei worth of three-month treasury bills.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2008
Czech crown <EURCZK=> 26.465 26.348 -0.43% +0.12%
Polish zloty <EURPLN=> 4.088 4.075 -0.32% -13.54%
Hungarian forint <EURHUF=> 267.4 267.43 +0.01% -5.75%
Croatian kuna <EURHRK=> 7.182 7.189 +0.1% +1.97%
Romanian leu <EURRON=> 3.928 3.934 +0.15% -9.71%
Serbian dinar <EURRSD=> 85.02 85.113 +0.11% -7.95%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +17 basis points to +173bps over bmk*
5-yr T-bond CZ5YT=RR +17 basis points to +152bps over bmk*
10-yr T-bond CZ9YT=RR +18 basis points to +129bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +7 basis points to +353bps over bmk*
5-yr T-bond PL5YT=RR +9 basis points to +309bps over bmk*
10-yr T-bond PL10YT=RR +14 basis points to +269bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +44 basis points to +762bps over bmk*
5-yr T-bond HU5YT=RR +47 basis points to +704bps over bmk*
10-yr T-bond HU10YT=RR +48 basis points to +524bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1129 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
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(Reporting by Reuters bureaus; Writing by Marius Zaharia;
Editing by ...)
