(Changes dateline, recasts with late falls, new comments.)
By Sandor Peto
BUCHAREST/BUDAPEST, Oct 30 (Reuters) - Central European
currencies turned early gains into sharp falls in late trade on
Thursday as the dollar firmed against the euro and earlier
buyers closed positions.
The dollar's rise, which led investors to cut back on taking
risk, was probably caused by end-of-month technical factors,
analysts said.
But the retreat in Central Europe indicated that its markets
remain fragile, despite a rally this week after the announcement
of an International Monetary Fund and European Union loan to
Hungary, a rate cut by the Federal Reserve and rises by equity
markets around the world.
"I blinked twice and the forint was weaker by two big
figures," one Budapest-based fixed income trader said.
Dealers said Czech and Polish signals that the process of
their entry to the euro zone may be slower than many market
players had hoped for, were also negative to the currencies.
The Czech crown <EURCZK=> weakened against the euro all day
and was softer by 2.49 percent at 24.405 at 1519 GMT, after
central bank Governor Zdenek Tuma said the country should not
set a euro entry date amid the global financial crisis
[].
Investment bank UBS recommended going long euro against the
crown through one year forwards due to what it said was too much
appreciation in light of the global slowdown [].
"Key levels in upcoming days will be 23.600-24.800. If one
breaks, (the exchange rate) flies by another 50 hellers," a
Prague-based dealer said.
"But I believe in a return to the correction trend that we
saw over the past 2 to 3 months, but if (the exchange rate)
falls below 23.600, then it's over, and we go to 22.500 till the
end of the year -- that's it," he added.
The falls by other units in the region accelerated after
comments by Polish central bank Governor Slawomir Skrzypek.
He said Poland may not be able to stick to all parts of its
euro roadmap timetable and that the bank's policy bias was
neutral, but rate cuts ahead were possible [].
The zloty <EURPLN=> eased 1.7 percent to 3.587 to the euro,
while Hungary's forint <EURHUF=> shed 1.7 percent to 260.26.
Romania's leu <EURRON=> tracked the region. The central
bank's decision to hold interest rates flat at 10.25 percent and
to cut minimum reserve requirements for leu liabilities to 18
percent from 20 percent briefly sent the leu to session lows,
hitting 3.6500 per euro, before bouncing back slightly.
Analysts said the minimum reserve decision should help
liquidity and alleviate upward pressure on interbank rates.
"The immediate impact on the market would be that on Nov. 24
(deadline for a new reserve period), some 2 billion lei will
enter the market and contribute to further relaxation of money
market rates," said Ciprian Dascalu of Millennium Bank.
Serbia's central bank intervened for the third time this
week on Thursday selling 30 million euros to banks, providing
liquidity to a thin market, where banks still refuse to trade
among themselves fearing further dinar falls.
The dinar<EURRSD=> eased 0.28 percent to 84.837 to the euro.
Government bonds in the region also retreated after a rally
earlier this week. Traders said foreign buyers were still
missing.
"We may now have a day of strengthening, then two days of
weakening and so on. It's difficult to spot a trend at such an
illiquid market," one Warsaw-based trader said.
Traders in Hungary, where bond yields fell by about 150
basis points in the past two days, were more optimistic.
"The situation is very changeable... but there is no
(government paper) supply, which suggests that yields can go
down to around 11.50 percent (the central bank's base rate),
while the country's financing is solved and that can also help,"
one trader said.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2008
Czech crown <EURCZK=> 24.405 23.811 -2.49% +7.9%
Polish zloty <EURPLN=> 3.587 3.558 -0.82% +0.37%
Hungarian forint <EURHUF=> 260.26 255.92 -1.7% -2.93%
Croatian kuna <EURHRK=> 7.166 7.165 -0.01% +2.19%
Romanian leu <EURRON=> 3.627 3.637 +0.27% -1.31%
Serbian dinar <EURRSD=> 84.837 84.6 -0.28% -7.72%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +29 basis points to 201bps over bmk*
5-yr T-bond CZ5YT=RR +1 basis points to +166bps over bmk*
10-yr T-bond CZ9YT=RR -18 basis points to +121bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -8 basis points to +469bps over bmk*
5-yr T-bond PL5YT=RR -68 basis points to +370bps over bmk*
10-yr T-bond PL10YT=RR -66 basis points to +280bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -76 basis points to +992bps over bmk*
5-yr T-bond HU5YT=RR -54 basis points to +910bps over bmk*
10-yr T-bond HU10YT=RR -1 basis points to +680bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1619 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
(Reporting by Reuters bureaus and Carolyn Cohn from London,
writing by Sandor Peto, editing by Victoria Main and Andy Bruce)
