* Forint testing resistance levels, rally hurts zloty
* Romania awaits court decision on govt plans
* Weakening dollar pushing investors to EM
(Updates throughout)
By Dagmara Leszkowicz and Jason Hovet
WARSAW, Oct 5 (Reuters) - Emerging European currencies
reversed early losses on Tuesday on the back of a weaker dollar,
with trades favouring the forint on hopes the Hungarian
government can follow through on fiscal tightening plans.
The forint has jumped more than 5 percent in the past month
after the centre-right ruling Fidesz party pledged to cut the
budget deficit below 3 percent of economic output.
But markets are still waiting for the details to be released
this month, and many analysts remain scpetical that Fidesz will
be able to meet budget commitments agreed with the European
Union to bring its budget back in line with bloc rules.
The forint rally has dragged on regional peers, especially
hurting the Polish zloty due to renewed long positions in the
forint versus short zloty.
The forint <EURHUF=> added 1.1 percent to bid at 270.45 to
the euro by 1455 GMT and near five-month highs. The Polish zloty
<EURPLN=> was up at 3.956 to the euro after earlier trading on
the weak side of 3.970 -- a level it has not traded above for an
extended period since the start of September.
"With falling dollars everybody is happy to invest into
emerging markets," a Prague-based dealer said, adding that the
forint remained in investor sights but warned the move may have
gone too far.
"Any spike (in the EUR/HUF rate) is used to sell (euros),
but it looks a little overdone."
The Fidesz government has spooked investors since sweeping
to power in April, first by comments that compared Hungary's
debt situation -- with a debt-to-GDP ratio roughly equal to the
EU average -- and with Greece's, then by halting talks with the
International Monetary Fund and the European Commission over a
new aid deal.
Dealers said investors are still staying cautious but the
forint at resistance levels between 270-271 per euro, which, if
broken could propel the forint to post-election highs around 261
seen in April.
COURT CASE
In Romania, another IMF-aid country along with Hungary,
trade was quiet before Wednesday's expected ruling by the
Constitutional Court on a government pension reform bill that is
a key part of aid conditions.
The leu has underperformed central European peers since
September as political noise and weak government debt noises get
in the way. The opposition is set to file a no-confidence vote
ahead of an IMF mission to review the 20-billion-euro aid deal
at the end of October.
The leu <EURRON=> dipped 0.2 percent on Tuesday. The Czech
crown <EURCZK=> was down 0.1 percent, around half a percent off
23-month peaks hit last week when central bank minutes revealed
a more hawkish stance on the rate setting board.
Markets anticipate Poland's central bank to be the first to
tighten monetary policy, followed by the Czechs.
A member of the Polish central bank's Monetary Policy
Council (MPC), Andrzej Bratkowski, told Reuters on Monday he
believed the zloty was undervalued but that he did not expect
any sharp appreciation due to Poland's fiscal difficulties and
the external environment. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.514 24.497 -0.07% +7.36%
Polish zloty <EURPLN=> 3.956 3.961 +0.13% +3.74%
Hungarian forint <EURHUF=> 270.45 273.5 +1.13% -0.04%
Croatian kuna <EURHRK=> 7.301 7.291 -0.14% +0.11%
Romanian leu <EURRON=> 4.282 4.274 -0.19% -1.04%
Serbian dinar <EURRSD=> 105.99 106.19 +0.19% -9.54%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +2 basis points to 92bps over bmk*
7-yr T-bond CZ7YT=RR -3 basis points to +96bps over bmk*
10-yr T-bond CZ9YT=RR -1 basis points to +109bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +3 basis points to +384bps over bmk*
5-yr T-bond PL5YT=RR +7 basis points to +358bps over bmk*
10-yr T-bond PL10YT=RR -2 basis points to +319bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +5 basis points to +538bps over bmk*
5-yr T-bond HU5YT=RR +19 basis points to +500bps over bmk*
10-yr T-bond HU10YT=RR -10 basis points to +438bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1658 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Dagmara
Leszkowicz/Jason Hovet; editing by Stephen Nisbet, Ron Askew)
