* FX fails to track euro, rate expectations supportive
* HUF helped by cbank talk, mid-term trend hinges on budget
* Political bickering keeps tension in Romanian markets
(Adds fixed income, details, quote)
By Marius Zaharia
BUCHAREST, Dec 15 (Reuters) - Central European currencies
were broadly stable in thin trade on Wednesday, shrugging off
the euro's weakness as investors focused on prospects for higher
interest rates in Hungary and Poland in the near future.
The Polish zloty and Hungarian forint broke their 200-day
moving averages at 3.9870 and 276 per euro, respectively, on
Tuesday, which could support further gains, although pre-holiday
trade provides little ammunition to consolidate the trend.
In Poland, a closely-watched data release on Tuesday showed
November inflation at 2.7 percent, a touch below the consensus
forecast, but above the central bank's 2.5 percent target, which
kept expectations for a rate hike in early 2011 intact.
Forward rate agreements (FRAs) eased by 5 basis points after
the data release, but still price in a 50 basis point increase
in rates over the next three months and the zloty did not weaken
on the news.
The forint was boosted by central bank Governor Andras Simor
saying one interest rate hike would not be enough to get
inflation back on target and a pledge by Economy Minister Gyorgy
Matolcsy that Hungary would enforce spending cuts in February.
"Speculation surrounding another rate rise in December
provided momentary support for the forint," Commerzbank said in
a note. "Medium-term, the government's reform policy will
however determine its fate."
At 1038 GMT, the zloty <EURPLN=> and the forint <EURHUF=>
were less than 0.2 percent weaker on the day in thin trade.
Romania's leu <EURRON=> and the Czech crown <EURCZK=> were flat.
Regional currencies usually track moves in the euro, which
on Wednesday traded around half-a-percent weaker versus the
dollar, but with many investors closing books before the end of
the year, the correlation seemed temporarily broken.
Hungarian bonds were little changed, but traders said they
have noticed mild selling pressure across the curve ahead of a
debt auction on Thursday, the first since a double downgrade by
Moody's last week.
"There is absolutely no demand, and we don't see much demand
for the auction tomorrow, either," a bond dealer said.
STILL VULNERABLE
One trader said the forint could be hit late in the session
by the Swiss franc's rise to around 1.28 versus the euro, a near
record high. Hungarian households' large exposure to
franc-denominated loans taken during the boom years has created
risk for them, and Hungary's economy, as the franc appreciates.
A warning by the European Central Bank on Tuesday that the
government needs to respect the independence of Hungary's
monetary authority is also keeping investors on their toes
[].
"This will reinforce the unpopularity of HUF assets amongst
investors and we are hedged via long PLN/HUF positions at this
stage although the forint has failed to react in a meaningful
way hitherto," BNP Paribas said in a note.
The Fidesz government has repeatedly unnerved markets with
unorthodox moves such as nationalising pension funds or
enforcing special taxes on banks, which may help cut the budget
deficit in the near term, but are seen as unsustainable.
In Romania, local assets continue to be affected by
political wrangling. The opposition has said it plans to file
another no-confidence motion against the government, which
submitted a key state wages reform bill to parliament on
Tuesday.
Analysts widely expect the government to survive the
no-confidence vote, which would be the third this year. However,
traders said tension remains in the market, keeping the leu
within this year's narrow trading range of 4.2-4.3 versus the
euro.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.139 25.137 -0.01% +4.69%
Polish zloty <EURPLN=> 3.992 3.986 -0.15% +2.81%
Hungarian forint <EURHUF=> 275.37 274.92 -0.16% -1.82%
Croatian kuna <EURHRK=> 7.388 7.393 +0.07% -1.07%
Romanian leu <EURRON=> 4.285 4.286 +0.02% -1.11%
Serbian dinar <EURRSD=> 104.92 105.11 +0.18% -8.62%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -1 basis points to 77bps over bmk*
7-yr T-bond CZ7YT=RR +5 basis points to +72bps over bmk*
10-yr T-bond CZ9YT=RR +3 basis points to +79bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +2 basis points to +638bps over bmk*
5-yr T-bond HU5YT=RR +6 basis points to +571bps over bmk*
10-yr T-bond HU10YT=RR +2 basis points to +488bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1238 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
For related news and prices, click on the codes in brackets:
All emerging market news []
Spot FX rates
Eastern Europe spot FX <EEFX=> Middle East spot FX <MEFX=>
Asia spot FX <ASIAFX=> Latin America spot FX <LATAMFX=>
Other news and reports
World central bank news [] Economic Data Guide <ECONGUIDE>
Official rates [] Emerging Diary []
Top events [] Diaries [] Diaries Index []
(Reporting by Reuters bureaus, writing by Marius Zaharia;
Editing by Susan Fenton)
