* Currencies firm on improved sentiment, zloty leads gains
* Analysts expect Polish rates unchanged on Wednesday
* Czech eurobond eases pressure on local debt market
(Adds detail, fixed income)
By Marius Zaharia
BUCHAREST, April 29 (Reuters) - Emerging European currencies
firmed on Wednesday, led by the Polish zloty which got a boost
from a cutback in expected exposure to soured currency options
ahead of a central bank meeting seen key for unit's future.
The zloty firmed more than its peers, as Poland's financial
watchdog halved its FX option exposure forecast, a key weakening
driver in the past, to 4.5 billion zlotys. []
Many Polish companies got in trouble when they hedged the
wrong way in the summer, when the zloty traded at record highs.
"Emerging markets are opening strong, the forint firmed
already yesterday as the zloty regained strength," a Budapest
dealer said. "Potential losses ... due to option positions can
be lower than expected, that's what strengthened the zloty."
Poland, where a higher-than-expected budget deficit is
hampering its goal to enter the euro zone in 2012, is seen by
most analysts holding rates unchanged on Wednesday.
The regional heavyweight has gone through an aggressive 225
basis point easing since November to help its slowing economy,
but this has added a significant weakening pressure on the
zloty, which lost 30 percent from summer highs as the financial
crisis unfolded.
"Markets might interpret a rate cut ... as a sign that the
Monetary Policy Council is ignoring the exchange rate effects of
its decision (and) that might put new pressure on the currency,"
Commerzbank said in a morning note.
"If on the other hand the MPC made future rate decisions
dependent on a stable zloty then this would constitute a
positive sign for the Polish currency."
With most of the countries in the region facing recession,
central banks cut interest rates sharply, but the side effect
was a further weakening of their already falling currencies.
By 0947 GMT, the zloty <EURPLN=> rose 1 percent from the
domestic close, the Hungarian forint <EURHUF=> gained 0.3
percent, while the Czech crown <EURCZK=> remained stable and the
Romanian leu <EURRON=> added 0.5 percent.
Dealers said the region gained also from a tolerance to risk
triggered by benign U.S. housing data on Tuesday.
However, concerns about a global swine flu outbreak still
weighed, preventing a sharp trend reversal as seen throughout
the first months of this year during global mood shifts.
The swine flu threatened to add to a global slowdown,
hitting central Europe's export-driven economies, which have
already buckled under a drop in demand in the euro zone.
In debt markets, Hungarian bonds ticked up in line with the
forint, while Czech bonds were little changed.
The Czech Republic priced a 1.5 billion 2014 euro bond on
Wednesday, and said it was unlikely to return to international
markets this year. [].
The eurobond issue takes pressure off the local debt market
as it helped secure a large chunk of the financing needs.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.735 26.71 -0.09% +0.07%
Polish zloty <EURPLN=> 4.439 4.485 +1.04% -7.3%
Hungarian forint <EURHUF=> 291.95 292.9 +0.33% -9.73%
Croatian kuna <EURHRK=> 7.428 7.436 +0.11% -0.85%
Romanian leu <EURRON=> 4.193 4.213 +0.48% -4.26%
Serbian dinar <EURRSD=> 95.36 95.02 -0.36% -6.17%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -12 basis points to 180bps over bmk*
4-yr T-bond CZ4YT=RR +2 basis points to +204bps over bmk*
8-yr T-bond CZ8YT=RR -1 basis points to +299bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -3 basis points to +876bps over bmk*
5-yr T-bond HU5YT=RR 0 basis points to +817bps over bmk*
10-yr T-bond HU10YT=RR -19 basis points to +710bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1247 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus; writing by Marius Zaharia;
editing by Toby Chopra)
