By Jason Hovet
PRAGUE, Feb 18 (Reuters) - The Czech crown rose to a two-month high on Thursday as investors ditched short positions that had favoured the Polish zloty, while other currencies also held firmer.
The zloty/crown regional cross trade has been a favourite among investors in the region, with investors using the Czech unit's lower rates for funding purposes.
But the zloty has firmed 1.5 percent against the crown in the past two weeks and comments by the Czech central bank's deputy governor on Thursday underlined that its interest rates will not fall any further.
Polish rates look set to stay on hold for several months to come.
"A lot of people are turning around their investment portfolio," a Prague-based dealer said.
"Everybody had been buying zloty because of upcoming privatisations, and (zloty/crown) was a strategy no. 1 for investment houses in London. I think the Polish/Czech story is partially done," the dealer added.
The crown <EURCZK=> rose 0.6 percent on the day to bid at 25.67 to the euro, jumping on stop losses after firming past 25.80 level.
The zloty <EURPLN=> added 0.1 percent, and the Hungarian forint <EURHUF=> was up a similar amount. Only the Romanian leu <EURRON=> fell, losing 0.2 percent to 4.13 to the euro.
Stock markets in central Europe, however, fell by up to 1 percent.
Some analysts said the firming of the zloty, which trades now near a 2010 high, had knocked value off the zloty/crown cross trade. But others say the crown now had room to catch up with the zloty, and the cross trade could again be a factor.
The zloty has gained 1.5 percent against the crown <PLNCZK=R> in the past two weeks despite crown firming this week.
"We see current CZK outperformance, although admittedly very impressive, as temporary and we have serious doubts that it will prove sustainable," Piotr Matys, 4Cast analyst, said.
"Thus it is worth keeping an eye on PLN/CZK. We still prefer the PLN on the back of fundamentals and retracement below 6.40 could present an opportunity to buy it against the CZK."
Volatility has hit central Europe's markets this month while investors watch for a more detailed EU response to euro zone member Greece's rising budget deficits. The euro, which dropped on Thursday, is central Europe's main reference currency, and units in the region usually track moves in the euro/dollar.
But that correlation has been broken several times this month because investors took positions in central European countries, favouring their better growth prospects and fiscal positions to those in the euro zone periphery. --------------------------MARKET SNAPSHOT-------------------- Currency Latest Previous Local Local
close currency currency
change change
today in 2010 Czech crown <EURCZK=> 25.67 25.815 +0.56% +2.52% Polish zloty <EURPLN=> 3.98 3.985 +0.13% +3.12% Hungarian forint <EURHUF=> 271.45 271.65 +0.07% -0.41% Croatian kuna <EURHRK=> 7.292 7.292 0% +0.24% Romanian leu <EURRON=> 4.129 4.123 -0.15% +2.63% Serbian dinar <EURRSD=> 98.75 98.36 -0.39% -2.91% Yield Spreads Czech treasury bonds <0#CZBMK=> 3-yr T-bond CZ3YT=RR +1 basis points to 97bps over bmk* 7-yr T-bond CZ7YT=RR 0 basis points to +139bps over bmk* 10-yr T-bond CZ10YT=RR -1 basis points to +120bps over bmk* *Benchmark is German bond equivalent. All data taken from Reuters at 1019 CET. Currency percent change calculated from the daily domestic close at 1700 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 Jason Hovet; editing by Patrick Graham)