* Crown erases losses from rate cut expectations
* Lower CPI boosts rate cut view, bonds
(Adds bonds, details)
By Jason Hovet
PRAGUE, Nov 11 (Reuters) - The Czech crown touched a
six-week high on Wednesday, erasing losses caused by
expectations of an interest rate cut that did not come last
week, but gained less than other central European peers.
In Hungary, lower-than-expected October inflation signalled
space for more monetary easing, giving a boost to local bonds
and highlighting divergent policies in the region as economies
battle to get out of recession.
The region's markets have benefitted this month from a
weakening dollar that has pushed investors into riskier emerging
market assets, although Hungary's forint and Poland's zloty are
still off peaks from September and October.
Strategists expect more currency firming on the back of
dollar weakness, and as more economic data in global and
regional economies show signs of recovery.
On Wednesday, the crown <EURCZK=> pulled up to levels seen
at the start of October before central bank Governor Zdenek Tuma
and his deputy started speaking in favour of further monetary
policy easing and markets started pricing in a rate cut.
"Their words were not followed by actions," said CSOB FX
analyst Jan Cermak.
The crown edged up 0.4 percent to bid at 25.376 to the euro
by 1010 GMT, extending gains after September industrial data
came in line with an earlier flash estimate that showed
manufacturing's fall was slowing. []
Cermak said the crown could test 25 per euro in the short
run. Markets will also look to Friday's release of the minutes
of the central bank meeting last week when policymakers narrowly
voted 4-3 not to cut interest rates from an already record low.
MORE TO CUT
In Poland, the zloty <EURPLN=> led the region's gains with a
0.8 percent rise to 4.14 to the euro as local markets were shut
for holiday.
The forint <EURHUF=> added 0.8 percent to 269.13 to the
euro, unchanged after October inflation came in below
expectations to signal more interest rate cuts ahead.
[]
Hungarian bond yields dropped 8-10 basis points with the
5-year edging down to 6.99 percent. The main interest rate there
stands at 7 percent, compared to a region-low of 1.25 percent
for the Czech Republic.
Rate cut hopes along with the firming currency have buoyed
Hungarian debt after yields halved since March, although some
analysts say the yield drop has gone too far.
"The market has all but priced in a cut," a dealer said. "We
will consolidate slowly, the screen is all bids and I don't see
a major core market turn ahead to curb risk appetite."
Only Romania's leu <EURRON=> lagged, held back by political
uncertainty as Romania's new prime minister designate Liviu
Negoita moves to form a government that analysts give little
chance of winning parliamentary support.
Romania will force 1.3 million state employees to take 8
days unpaid holiday at the end of 2009 as part of efforts to
meet International Monetary Fund spending goals. []
The leu hovered on the strong side of 4.30 per euro where it
has clung to through the month-long political haggling.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.376 25.477 +0.4% +5.43%
Polish zloty <EURPLN=> 4.14 4.174 +0.82% -0.6%
Hungarian forint <EURHUF=> 269.13 271.29 +0.8% -2.07%
Croatian kuna <EURHRK=> 7.283 7.274 -0.12% +1.13%
Romanian leu <EURRON=> 4.295 4.294 -0.02% -6.53%
Serbian dinar <EURRSD=> 94.09 93.08 -1.07% -4.9%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -1 basis points to 99bps over bmk*
7-yr T-bond CZ7YT=RR -2 basis points to +106bps over bmk*
10-yr T-bond CZ10YT=RR -8 basis points to +93bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -11 basis points to +517bps over bmk*
5-yr T-bond HU5YT=RR -8 basis points to +454bps over bmk*
10-yr T-bond HU10YT=RR -10 basis points to +395bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1110 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
For related news and prices, click on the codes in brackets: All
emerging market news []
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(Reporting by Reuters bureaus, writing by Jason Hovet, editing
by Mike Peacock/Victoria Main)
