* Investors watching Romania court ruling on austerity
* Positive result mostly priced-in, surprise would hit leu
* Global risk trade still drives region
(Adds bonds, Romania CDS, updates prices)
By Jason Hovet
PRAGUE, June 24 (Reuters) - The leu eased from morning highs
with other emerging European currencies on Thursday, with
investors keeping a wary eye on a court ruling later in the day
over austerity measures key for Romanian aid.
The Romanian government survived a parliamentary
no-confidence vote on June 15 over the tough public sector pay
cuts it plans, and investors have mostly priced in a positive
ruling at the constitutional court where appeals were made.
But the court has a history of overturning reform packages,
making it difficult for governments to keep spending in check.
A court rejection of the cost-saving measures would further
postpone International Monetary Fund aid, increasing financing
risks. []
Romanian 5-year credit default swaps widened around 9 basis
points to a nearly two-week high of 380 bps on Thursday.
The leu <EURRON=> inched down a touch to 4.229 to the euro
by 0909 GMT, sticking around its lowest levels this year.
"All we can do for now is expect the ruling," said one
trader in Bucharest.
"If the cuts pass then the leu's firming should be rather
modest, as the market has priced in that the measures will pass.
Should they be rejected, we will likely see sudden
depreciation."
WEAK DOLLAR GIVES LIMITED BOOST
The currency performed slight better than the Polish zloty
<EURPLN=> and Hungary's forint <EURHUF=>, which slipped 0.1
percent and 0.2 percent, respectively after gaining around half
a percent in early traded.
The Czech crown <EURCZK=> was little changed on the day at
25.707 to the euro. The unit eked out gains on Wednesday amid
poor risk appetite and has seen its weakening capped at 25.800.
Currencies were helped early by a weaker dollar after the
U.S. Federal Reserve said the economic recovery was faltering,
hurting the U.S. currency. But the outlook later weighed on
stock openings, knocking support for currencies. []
Budapest <> lost 1.1 percent and other exchanges fell up
to 1 percent. The Thomson Reuters Equity Emerging Markets Europe
Index <.TRXFLDEETU> reversed an early rise to fall 0.4 percent.
Dealers expected currencies to take cues from global risk
trade. Central European markets have been rattled recently by
growing worries over the region's ability to rein in budget
deficits, especially in IMF-aid recipients Romania and Hungary.
Hungary's new government hopes to cut next year's budget
deficit to levels agreed with lenders and will seek IMF/EU
backing for reforms, Deputy Prime Minister Tibor Navracsics said
late on Wednesday. []
The fiscal crisis and austerity measures have led to more
cautious central bank policies, and have made many analysts push
back expectations for rate hikes in the stronger economies like
Poland and the Czech Republic.
The Czech central bank left its benchmark rate on hold at an
all-time low of 0.75 percent as expected and most analysts
expect the first hike in the first part of 2011. []
But Polish bond yields have risen to their highest level
this month on expectations a rate hike there could still happen
this year.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.707 25.695 -0.05% +2.38%
Polish zloty <EURPLN=> 4.083 4.08 -0.07% +0.51%
Hungarian forint <EURHUF=> 281.31 280.67 -0.23% -3.9%
Croatian kuna <EURHRK=> 7.191 7.191 0% +1.64%
Romanian leu <EURRON=> 4.229 4.228 -0.02% +0.2%
Serbian dinar <EURRSD=> 104.17 104.04 -0.12% -7.96%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +4 basis points to 151bps over bmk*
7-yr T-bond CZ7YT=RR +10 basis points to +167bps over bmk*
10-yr T-bond CZ9YT=RR +2 basis points to +158bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +14 basis points to +630bps over bmk*
5-yr T-bond HU5YT=RR +14 basis points to +593bps over bmk*
10-yr T-bond HU10YT=RR +7 basis points to +499bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1108 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 Ron Askew)
