(Recasts to update price fall)
By Sandor Peto and Jason Hovet
BUDAPEST/PRAGUE, Feb 3 (Reuters) - Hungary's forint and
Poland's zloty plunged through psychological levels against the
euro on Tuesday after weeks of steep falls by central Europe's
currencies, battered by a grim economic outlook.
The zloty <EURPLN=> slipped beyond the 4.50 to the euro
level and the forint <EURHUF=D2> traded for the first time on
the weak side of 300 after emerging European bourses tracked
western peers lower.
Market participants said technical factors drove the moves
adding that recent bad news about recession in the region's key
export markets and interest rate cuts by central banks in the
region added up when the forint and the zloty broke key levels.
Having entered new ground, the units can weaken further,
weighing on the region's other currencies and fuelling concerns
that defaults on foreign currency loans in some states like
Hungary can strain the balance sheets of banks.[]
Central banks in the region, which have cut rates in the
past months to help the economy, are in a difficult situation as
defending the currencies would require a reversal in policy.
"The currency weakening may stop now but it is a bigger risk
that they will ease further," said KBC analyst Zsolt Papp.
"Whatever central banks do, they can stop the trend only for
the short term -- the markets are aware that no central bank in
the region is in the position now to be able to keep interest
rates high for a long time."
The forint, after hitting the 300 level against the euro for
the first time, eased to record lows at 300.50, but later it
regained some ground to trade around 299 at 1311 GMT.
The economy of Hungary, which in October received a $25.1
billion rescue package from the IMF and the European Union to
help sooth concerns over its high foreign debt, is seen
contracting by 2-3 percent this year.
Danske Bank said in a note the next technical target for the
forint is at around 307-310 if the currency closes weaker than a
resistance area around 299.30.
"A break of that resistance (307-310) is not unlikely and
315 could be reached within the next 3-5 weeks," Danske said.
In another note Danske said the zloty could also weaken
further and reach a major resistance area at around 4.8125 to
the euro in 2-4 weeks, while its short-term target was 4.6290.
At 1311 GMT the zloty traded at 4.547, weaker by 1.32
percent from Monday.
Some market participants said the zloty's weakening was
caused by speculation to push it through barrier levels in
option deals taken out by companies last year, while others said
fundamental factors played the key role as Poland's economy was
also slowing down drastically.
"I would question whether this (the forint and zloty falls)
is portfolio, or speculative, or short-term money development;
it is rather the real economy adjusting to the lack of capital,"
said Barbara Nestor, an analyst at Commerzbank.
ROMANIA MAY CUT RATES
Central European government officials and central bankers
have slashed growth forecasts and cut interest rates in the face
of deepening recession in the euro zone, a main export market.
The Czech crown <EURCZK=> slipped beyond 28.30 against the
euro on Tuesday for the first time since July 2007, and by 1311
GMT it shed 0.4 percent to 28.33.
Romania is expected to join the monetary policy loosening
trend on Wednesday, while the Czechs are seen cutting interest
rates on Thursday. [] []
Romania's leu <EURRON=> outperformed the region on Tuesday,
adding 0.44 percent to 4.301 per euro. Data showed on Monday a
fall in central bank hard currency reserves, signalling
potential intervention last month. []
"I don't see how a cut in the key interest rate can hurt the
leu, because interest rates on the interbank market are way
above the central bank's anyway," one dealer said, adding fears
of central bank intervention can put a floor on the currency.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 28.33 28.218 -0.4% -5.57%
Polish zloty <EURPLN=> 4.547 4.487 -1.32% -9.5%
Hungarian forint <EURHUF=> 299 297.15 -0.62% -11.86%
Croatian kuna <EURHRK=> 7.403 7.354 -0.66% -0.51%
Romanian leu <EURRON=> 4.301 4.32 +0.44% -6.66%
Serbian dinar <EURRSD=> 94.227 94.32 +0.1% -5.04%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +13 basis points to 116bps over bmk*
4-yr T-bond CZ4YT=RR +18 basis points to +111bps over bmk*
8-yr T-bond CZ8YT=RR -3 basis points to +122bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +5 basis points to +337bps over bmk*
5-yr T-bond PL5YT=RR +3 basis points to +277bps over bmk*
10-yr T-bond PL10YT=RR +2 basis points to +252bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +11 basis points to +836bps over bmk*
5-yr T-bond HU5YT=RR +14 basis points to +787bps over bmk*
10-yr T-bond HU10YT=RR +17 basis points to +619bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1411 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
For related news and prices, click on the codes in brackets: All
emerging market news []
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(Reporting by Reuters bureaus, writing by Sandor Peto/Jason
Hovet)
