* FX drop, zloty holds near key level before output data
* Polish bonds continue rally
* Leu calm before govt budget meeting
* Investors shrug off move for EU states' budget rule change
(Adds bonds)
By Jason Hovet
PRAGUE, Aug 18 (Reuters) - The Polish zloty retreated
slightly from three-month highs on Wednesday, but held around a
key level as investors waited for industrial output data later
to assess the strength of central Europe's largest economy.
Other emerging European currencies slipped after stock
markets fell for the first time this week, tracking European
peers lower due to weaker oil prices.
The zloty broke below the 3.95 per euro mark in the previous
session on the back of stronger equity markets, disregarding a
lower-than-expected rise in wage data on Tuesday that suggested
the central bank may not rush with rate hikes, which have been
expected by the end of the year. []
Poland's growth accelerated to 3.1 percent year-on-year or
slightly more in the second quarter, Michal Boni, the top aide
to the country's prime minister, was quoted as saying by the
Dziennik daily on Wednesday. []
That is faster than most of its European peers, and dealers
said July industrial data could give a boost to the currency.
"If there won't be bad news from the (global) markets, the
zloty could calmly gain further. The zloty appreciation is
supported by the good fundamentals of the Polish economy," said
Sylwester Brzeczkowski, dealer at RBS Bank in Warsaw.
The zloty <EURPLN=> bid 0.2 percent weaker from Tuesday's
domestic close at 3.951 to the euro by 0908 GMT.
But Polish bonds continued to rally before the data on bets
that rate hikes are still some way off. Yields have dropped up
to 15 basis points since Friday when monthly inflation data also
came out slower than expected.
"With global rates continuing to fall, yields and rates in
the EMEA region continue to tick down, as the market is scaling
down expectations of possible monetary tightening in the
region," Danske Bank said.
LEU IN RANGE
Second-quarter GDP data last week from the Czech Republic,
Hungary and Romania showed their stronger economies than
thought, but analysts say the pace of recovery is set to slow as
consumer demand remains sluggish and governments cut budgets.
Emerging Europe's export-driven economies may be hurt by a
slowdown in the euro zone's recovery, expected in the second
half of this year on the back of fiscal retrenchment and signs
the U.S. and Chinese economies are faltering.
Czech bond yields, which have touched lifetime lows on the
long end, inched up before a benchmark 2024 bond <CZ1002547=>
auction at midday.
The Czech crown <EURCZK=> dropped 0.3 percent to lead
currency losses. The Hungarian forint <EURHUF=> dropped 0.2
percent as did Romania's leu <EURRON=>
Romania's centrist government will likely sign off on a
budget revision on Wednesday to reflect an economic contraction
of 1.9 percent this year and deficit of 6.8 percent of GDP,
agreed under its 20 billion euro IMF-led aid package.
Traders have said they expected the leu to remain stuck in a
4.2-4.3 per euro range for the time being.
Dealers also said investors have mostly shrugged off news on
Tuesday about a request by nine mostly east European countries
for changes in European Union accounting rules in a way that
could cut budget deficit and debt levels of states that
implement pension reform []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.836 24.763 -0.29% +5.97%
Polish zloty <EURPLN=> 3.951 3.943 -0.2% +3.87%
Hungarian forint <EURHUF=> 278.7 278.07 -0.23% -3%
Croatian kuna <EURHRK=> 7.263 7.25 -0.18% +0.64%
Romanian leu <EURRON=> 4.239 4.23 -0.21% -0.04%
Serbian dinar <EURRSD=> 104.53 104.39 -0.13% -8.28%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +1 basis points to 113bps over bmk*
7-yr T-bond CZ7YT=RR +2 basis points to +113bps over bmk*
10-yr T-bond CZ9YT=RR +2 basis points to +116bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +1 basis points to +402bps over bmk*
5-yr T-bond PL5YT=RR -1 basis points to +376bps over bmk*
10-yr T-bond PL10YT=RR -2 basis points to +322bps 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 Patrick Graham)
