* FX firm, crown strongest vs euro since Jan
* Central bank rate decisions to be watched
(Recasts with new comments, background.)
By Dagmara Leszkowicz and Sandor Peto
WARSAW/BUDAPEST, June 19 (Reuters) - Currencies in the
European Union's main emerging markets firmed on Friday, led by
the Czech crown which surged to its strongest levels versus the
euro since January as it hit stop-loss levels in low liquidity.
Investors remain cautious following swings in intra-region
cross rates and ahead of next week's central bank meetings.
After a week of falls in equity markets, the region's
currencies were helped on Friday by a rebound of stocks, a
weaker dollar to the euro and some pre-weekend repositioning.
The Czech crown <EURCZK=> added one percent against the euro
by 1401 GMT to 26.17.
Both the Polish zloty <EURPLN=> and Hungary's forint
<EURHUF=> gained 0.8 percent, while the Romanian leu <EURRON=>
strengthened by 0.2 percent.
The zloty and the forint still shed 0.6 percent over the
week which has been dominated by investors' fears over Latvia,
while the crown gained 1.6 percent, partly on what dealers said
was unwinding of long zloty/crown positions.
Goldman Sachs said it had been stopped out of its long zloty
to crown trade recommendation in the previous session, with a
potential loss, but that the zloty was set to outperform.
"We still think fundamentally PLN/CZK should appreciate," it
said in a note. "That said, the trade has not worked well since
inception. The zloty has continued to trade weak."
A Reuters poll last month also reflected expectations that
the zloty would outperform the region in a 12-month horizon, but
investors also watch short-term differentiation factors.
The crown has traditionally been a safer haven in the region
due to the country's lower indebtedness and stronger current
account balance, while an expected rise in Poland's budget
deficit triggered some concerns in the past weeks.
CENTRAL BANKS WATCHED
Global risk appetite will remain the key factor for the
units and fundamental differences will become more important
only during the future recovery from the global crisis, said
Gunnar Tersman, analyst at Handelsbanken in Stockholm.
"(Next week's interest rate decisions in the region) will
influence the markets to the extent that they deviate from the
expectations," he said. "They can have an impact, but I think
not now."
The banks are seeking a delicate balance to have rates low
enough to help staggering economies weather the global crisis,
but high enough to prevent capital outflows and currency falls
seen earlier this year.
Relatively high rates can support a currency if there are
risk-bearing investors who have free funds and seek yield.
"The inflows of funds into EM (emerging market) and High
Yield funds have slowed noticeably, but record-high outflows
from money market funds are an indication that "cash on the
sidelines" will continue to be put back into the market in the
next few weeks," Commerzbank said in a note.
Hungary's central bank is expected to hold its 9.5 percent
base rate on Monday, and cut them only later.[]
The Polish central bank is seen cutting its key rate by 25
basis points to 3.5 percent on Wednesday [], and on
Thursday the Czech bank is expected to make the final cut in its
easing cycle by 25 basis points to 1.25 percent.[]
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.17 26.425 +0.97% +2.23%
Polish zloty <EURPLN=> 4.496 4.533 +0.82% -8.47%
Hungarian forint <EURHUF=> 278.35 280.67 +0.83% -5.32%
Croatian kuna <EURHRK=> 7.265 7.275 +0.14% +1.38%
Romanian leu <EURRON=> 4.213 4.221 +0.19% -4.71%
Serbian dinar <EURRSD=> 92.48 92.68 +0.22% -3.24%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -9 basis points to 120bps over bmk*
4-yr T-bond CZ4YT=RR +17 basis points to +172bps over bmk*
8-yr T-bond CZ8YT=RR +13 basis points to +282bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR 0 basis points to +381bps over bmk*
5-yr T-bond PL5YT=RR +4 basis points to +328bps over bmk*
10-yr T-bond PL10YT=RR -1 basis points to +292bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -20 basis points to +829bps over bmk*
5-yr T-bond HU5YT=RR -54 basis points to +753bps over bmk*
10-yr T-bond HU10YT=RR -47 basis points to +679bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1601 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
For related news and prices, click on the codes in brackets:
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Spot FX rates Eastern Europe spot FX <EEFX=>
Middle East spot FX <MEFX=> Asia spot FX <ASIAFX=>
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World central bank news [] Economic Data Guide <ECONGUIDE>
Official rates [] Emerging Diary []
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(Reporting by Reuters bureaus, Writing by Dagmara
Leszkowicz/Sandor Peto; Editing by Andy Bruce)
