(Recasts with new dateline, prices)
By Sandor Peto and Dagmara Leszkowicz
BUDAPEST/WARSAW, Dec 16 (Reuters) - Central European
currencies fell on Tuesday due to technical factors in Poland,
political uncertainty in Romania and expectations for interest
rate cuts to counter Europe's slide into recession.
The zloty <EURPLN=> led losses as Polish companies continued
to scramble to buy foreign currencies to settle losses on
hedging contracts.
The Czech crown <EURCZK=> eased to its weakest levels
against the euro since January ahead of a central bank meeting
on Wednesday, while in Romania dealers suspected renewed central
bank intervention to support the falling leu <EURRON=>.
The zloty fell 1.73 percent against the euro to 4.055 by
1438 GMT, the crown shed 0.83 percent to 26.34 and the leu lost
0.31 percent to 3.941. The region's equity markets, which posted
gains in the past weeks, were mixed.
The U.S. Fed appears set to cut rates later on Tuesday but a
combination of factors are preventing a retreat of the U.S.
dollar against the euro <EUR=> from lifting currencies in the
region as it would usually do, dealers said.
Some dealers said the zloty could remain the region's worst
performer in the rest of the year as hedging contracts taken out
in July, when the region's currencies soared, are turning sour
for many Polish exporters, hurting companies such as Poland's
biggest chemical producer Ciech <CECH.WA> and top home appliance
maker Zelmer <ZELM.WA>.
"The companies have liabilities in foreign currencies and
have to settle them before the end of the year," said BRE Bank
currency dealer Andrzej Bowtruczuk.
Meanwhile, a fall in a key euro zone manufacturing and
services activity index in December confirmed deepening
recession in central Europe's main export markets
[], which is taking its toll on the whole region as
a bunch of economic data showed in the past days.
The Czech central bank is expected to cut rates by half a
percentage point on Wednesday to help the economy.
"Quickly decelerating inflation is fuelling expectations for
further interest rate cuts," Raiffeisen said in its weekly note.
"Thus, we expect the correction of the Czech crown to peak in
the first half of 2009."
The forint <EURHUF=> eased 0.44 percent to 268.5 against the
euro, eroding expectations the central bank will opt for a rate
cut at its Dec. 22 meeting. Hungary has the region's highest
interest rates and is on the brink of recession.
However, "the 268 level may not be appropriate for a rate
cut, the bank may be concerned that the forint could weaken to
beyond 270 if they cut rates," one Budapest-based fixed income
trader said.
"Today's three-month auction was better subscribed then
expected ... but if there is no rate cut, short-term yields can
go higher."
In Romania, prime minister designate Emil Boc said the
budget deficit may widen to as much as four percent of GDP this
year against the 2.3 percent target [].
Uncertainty over the policy of the incoming government is
seen maintaining pressure on the leu, while dealers suspect that
the central bank stepped into the market repeatedly in recent
days to shore up the currency [].
"Further depreciation of the leu cannot be ruled out in
the coming weeks. Orders from companies remain the main driver
of the exchange rate at the moment, while non-resident players
remain almost outside the market," Raiffeisen said.
In the Czech Republic, trade on the bond market was quiet,
with markets awaiting the central bank's rate decision on
Wednesday.
"Market is waiting for the CNB decision tomorrow. We still
call for a 50 bps cut, with consensus mostly concentrated at
this level," Komercni Banka traders wrote in a morning note.
"The cuts should still come despite the current weakness in
the currency; with the economy deteriorating faster than
previously forecast and inflation more than 100 bp below the CNB
prediction, we believe deeper cuts would be justified."
Polish bond prices were stable with the market awaiting a
bond tender on Wednesday, when the finance ministry will offer
up to 2.5 billion zlotys in paper maturing in 2019 and up to 1.5
billion in bonds due in 2014.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2008
Czech crown <EURCZK=> 26.34 26.123 -0.83% +0.59%
Polish zloty <EURPLN=> 4.055 3.986 -1.73% -12.62%
Hungarian forint <EURHUF=> 268.5 267.33 -0.44% -6.19%
Croatian kuna <EURHRK=> 7.189 7.184 -0.07% +1.88%
Romanian leu <EURRON=> 3.941 3.929 -0.31% -10.08%
Serbian dinar <EURRSD=> 85.22 86.35 +1.31% -8.2%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -10 basis points to 159bps over bmk*
5-yr T-bond CZ5YT=RR +3 basis points to +132bps over bmk*
10-yr T-bond CZ9YT=RR -4 basis points to +111bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +7 basis points to +348bps over bmk*
5-yr T-bond PL5YT=RR -11 basis points to +297bps over bmk*
10-yr T-bond PL10YT=RR -5 basis points to +255bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -41 basis points to +746bps over bmk*
5-yr T-bond HU5YT=RR -52 basis points to +687bps over bmk*
10-yr T-bond HU10YT=RR +12 basis points to +501bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1538 CET.
Currency percent change calculated from the daily domestic
close at 1500 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 Dagmara
Leszkowicz; Editing by Ruth Pitchford)
