* Forint reaches 10-month high, leu stuck on politics
* Hungarian debt stronger, Polish, Czech auctions eyed
(Adds fixed income, quotes, detail)
PRAGUE, Oct 21 (Reuters) - Central European currencies,
mostly firmed on Wednesday to extend a rally from the past week,
with the Hungarian forint briefly touching its highest level
this year in early trade.
The forint <EURHUF=> led with a 0.5 percent rise to 264.02
to the euro by 0900 GMT, profiting mainly from dollar weakness
which also helped the Polish zloty <EURPLN=> to keep pace with a
0.6 percent rise.
Dealers said markets were mostly ignoring local factors that
point to interest rate cuts in Hungary, possible looser monetary
policy in the Czech Republic, a Romanian political stalemate,
and widening budget deficits in central Europe.
However, gains for stock markets, which are at or near 2009
highs but eased some on Wednesday, and a weaker dollar have
buoyed currencies in recent weeks.
"The market already seems to be relatively long on eastern
Europe," said Ulrich Leuchtmann, head of foreign exchange
research at Commerzbank in Frankfurt.
"Given what we've seen in eastern Europe as a relative
performance this (regional firming) makes some sense," he said,
adding though the moves looked to be overdone a bit.
The Czech crown <EURCZK=> was 0.2 percent stronger than at
the European close on Tuesday.
Parliament looked set to pass a first reading of the 2010
budget draft that envisions a deficit of 5.3 percent of gross
domestic product, lower than this year's expected gap after a
savings package was passed last month but still well over the
European Union's 3 percent ceiling for euro aspirants.
The crown, the only major central European currency to trade
stronger since the start of the year, was knocked earlier this
month by dovish comments from key central bankers.
Vice-Governor Miroslav Singer said on Tuesday that risks of
a W-shaped recovery in the Czech economy persist. []
LEU STUCK
Central Europe has been one of the hardest hit emerging
regions in the economic downturn, and its market rebound since
March has underperformed other developing countries.
Currencies have gained in the past week, led by more than 1
percent gains for the zloty and forint, with the latter on
expectations the central bank will moderate interest rate cuts.
The forint <EURHUF=> traded below 263 earlier although
dealers said markets may have only been testing liquidity.
The central bank cut rates to a more than three-year low of
7 percent on Monday. []
Diminished rate cut expectations have also lifted longer
dated bonds, and the spread between 3- and 10-year yields has
narrowed to around 15 basis points from about 60 in two weeks.
Hungarian yields dropped around 5 basis points on Wednesday.
In the Czech Republic, yields also dropped before a 3-year bond
auction due around midday, with demand expected to stay strong.
In Romania, the leu <EURRON=> was stuck at 4.29, with
investor concerns over efforts to form a new government tempered
by prospects of central bank intervention if the unit weakened
past 4.30 to the euro.
Romanian opposition parties on Tuesday refused to back
respected central banker Lucian Croitoru in his bid to become
prime minister, extending a political deadlock that threatens to
damage Bucharest's access to IMF aid. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.777 25.833 +0.22% +3.79%
Polish zloty <EURPLN=> 4.15 4.175 +0.6% -0.84%
Hungarian forint <EURHUF=> 264.02 265.35 +0.5% -0.18%
Croatian kuna <EURHRK=> 7.215 7.215 0% +2.08%
Romanian leu <EURRON=> 4.29 4.291 +0.02% -6.42%
Serbian dinar <EURRSD=> 93.101 93.102 0% -3.89%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +5 basis points to 105bps over bmk*
7-yr T-bond CZ7YT=RR -24 basis points to +91bps over bmk*
10-yr T-bond CZ10YT=RR -29 basis points to +81bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -10 basis points to +492bps over bmk*
5-yr T-bond HU5YT=RR -8 basis points to +436bps over bmk*
10-yr T-bond HU10YT=RR -10 basis points to +382bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1100 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet, editing
by Stephen Nisbet)
