*Crown seen weakening against the euro, rebound later
*Crown strength expected to hit economy
*Poll details on <CZ/ECON07>
By Mirka Krufova and Jana Mlcochova
PRAGUE July 16 (Reuters) - The Czech crown is expected to
drop from record highs within three months, a Reuters poll
showed on Wednesday, highlighting market expectations that the
currency's rally will eventually run out of steam.
Boosted by strong economic fundamentals and its safe-haven
status, the crown hit a record of 23.180 per euro <EURCZK=> on
Wednesday but analysts said some cooling is on the cards.
The median forecast in the survey among 11 analyst groups
was for the crown to trade at 23.50 versus the euro in one month
and at 24.00 in three months, versus Wednesday's levels around
23.20.
In a poll last month analysts forecast the crown to stand at
24.60 to the euro in July.
The Czech currency has defied analysts' expectations of a
correction in the past months and continued to scale record
levels, gaining 14.2 percent since January.
The crown has outpaced other central European currencies,
which have also been gaining ground. The Polish zloty has gained
11.8 percent this year and the Slovak crown 10.8 percent. The
Hungarian forint has firmed 8.8 percent.
Analysts attribute the rise, which accelerated this month,
to higher risk aversion that has caused investors to pull
positions from Asian and other emerging markets in favour of
central Europe, where the economies are seen somewhat protected
from the global financial turmoil.
There is also the example of Slovakia, whose crown currency
firmed significantly before euro zone entry next year. But a
pick-up in global sentiment and worsening domestic macro
conditions could lead to the crown's easing, analysts said.
"(Negative) global sentiment has helped drive the crown to
new highs. If this changes, the crown will weaken but I don't
see some dramatic turnaround in the next month," said Michal
Brozka, an analyst at Raiffeisenbank.
"In the second half of the year, we could see worsening
macroeconomic data which investors will take into account.
Growth is already weakening and could be worse due to the
(strong) crown."
Poor retail sales data earlier on Wednesday prompted
analysts to say the chances of a rate hike is falling as growth
slackens. But the figure had no effect on the crown, which
ignored the data. Forward rate agreements also show the market
has began to price out a rate hike.
"The crown has been propelled by external factors for a
number of months... the developments on the Czech market are not
enough to knock the crown down," said Radomir Jac, an analyst at
Generali PPF Asset Management.
One possible trigger of a correction could be a shift in
global sentiment, which would bring a revival of risk appetite
and push investors from emerging Europe into riskier assets.
"This could be the main trigger," said Patrik Rozumbersky,
an economist at UniCredit.
"I also see the Czech economy weakening, helping the crown
to also weaken," he said. He saw a correction in the fourth
quarter when the strong currency and fading external demand show
up in economic growth.
"The strong crown itself will dampen growth and contribute to
its correction."
(Additional reporting by Jason Hovet; Editing by Victoria
Main) ((prague.newsroom@thomsonreuters.com; +420 224 190 477;
Reuters Messaging: jana.mlcochova.reuters.com@reuters.net))
