Czech crown hits record highs, rate hike bets fall

...the dollar for a second session 
running on Friday, gaining strength from a robust economy that 
has highlighted the currency's safe haven qualities. 
    The crown and other currencies on the periphery of the euro 
zone such as the Polish zloty pushed higher this week along with 
Europe's common currency, which hit a record high against the 
dollar on the view that U.S. interest rates will fall further. 
    The rallying crown has reduced the scope for further 
interest rate hikes by the Czech central bank (CNB) to contain 
inflation fuelled by strong demand growth in the economy. 
    A majority of 11 out of 16 analysts in a Reuters poll 
earlier this week [CNB/INT] forecast no rate change when CNB 
policymakers gather for a monthly policy meeting on Thursday. 
    The crown firmed as high as 27.195 against the euro, above 
the previous record of 27.310 hit on Thursday. It peaked at 
18.989 bid to the broadly weak U.S. dollar. It traded at 27.215 
per euro  and 19.061 to the dollar  by 1405 GMT. 
    "The break of the 27.400 psychological level -- constituting 
the crown's high from last year -- added momentum," said one 
Prague-based dealer with a major bank. 
    The currency has drawn strength from economic growth of 
about 6 percent for the third year running and a trade surplus, 
a backdrop which tends to spur fund flows from investors seeking 
a safe haven in periods of risk aversion. 
    "From the technical point of view, the crown has room to 
broaden its gains. We see strong support for the euro against 
the crown only at levels close to 27.05," analysts at CSOB bank 
said in a research note. 
    The crown has risen 5.7 percent since July, defying the 
central bank's outlook for stability around 28.2 to the euro. 
    "The sharp firming in the crown over the past few days is 
jeopardising our scenario of an interest rate increase by the 
CNB next week," said Komercni Banka economist Jan Vejmelek, one 
of the five analysts in a Reuters poll who had forecast a hike. 
    Fading expectations of a near-term rate hike helped knock 
forward money market rates  from five-year highs. 
    The 3X6 FRA rate , showing where investors expect 
three month lending rates to be in three months' time, shed 3 
basis points on the day. 
    "It will be difficult for officials at the central bank to 
call for raising rates," said David Navratil, analyst at Ceska 
Sporitelna, who sees a next rate rise delayed until the first 
quarter of next year. 
    The CNB raised interest rates to a five-year high of 3.25 
percent in August. The strong crown and uncertainty about the 
extent of damage to global growth from credit and liquidity 
squeeze has since led policymakers to temper hawkish rhetoric. 
 

[PRAGUE/Reuters/Finance.cz]