(Adds Hungarian central banker comments in paras 2-3, new
prices throughout.)
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 the grim economic outlook.
The zloty <EURPLN=> slipped beyond the 4.60 to the euro
level. The forint <EURHUF=D2> traded for the first time on the
weak side of 300, prompting central bank Governor Andras Simor
to try to talk up the Hungarian currency.
"Such fast swings in the exchange rate could create tensions
in the domestic financial system, which is undergoing an
adjustment anyway, and is therefore more sensitive than normal,"
he was quoted by the national news agency MTI as saying
[].
Analysts said technical factors drove the moves, but recent
news about deepening 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 now,
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.
"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," said KBC analyst Zsolt Papp.
The forint eased to record lows at 303.50, but later it
regained some ground to trade around 301.84 at 1631 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 1531 GMT the zloty traded at 4.594, weaker by 2.33
percent from Monday.
Some market participants said its weakening was caused by
speculation to push it through barrier levels in option deals.
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.
RATE CUTS TO CONTINUE
States in the region are struggling to find room in their
budgets to help their economies weather falling exports and
investments and rising unemployment [], and interest
rate cuts are seen continuing despite the currency falls.
Romania is expected to join the region's monetary policy
loosening trend on Wednesday, while the Czechs are seen cutting
interest rates on Thursday. [] []
The Czech crown <EURCZK=> slipped beyond 28.30 against the
euro on Tuesday for the first time since July 2007, and by 1531
GMT it shed 1.11 percent to 28.535.
"(The crown) no longer profits from its (earlier) position
as a 'safe harbour'. The reason is mainly significantly
worsening macroeconomic situation and lowering of interest
rates," said Jan Vejmelek, head of research at Komercni Banka.
Romania's leu <EURRON=> outperformed the region on Tuesday,
adding 0.21 percent to 4.32 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=> 28.535 28.218 -1.11% -6.24%
Polish zloty <EURPLN=> 4.594 4.487 -2.33% -10.43%
Hungarian forint <EURHUF=> 301.84 297.15 -1.55% -12.69%
Croatian kuna <EURHRK=> 7.395 7.354 -0.55% -0.41%
Romanian leu <EURRON=> 4.311 4.32 +0.21% -6.88%
Serbian dinar <EURRSD=> 93.123 94.32 +1.29% -3.91%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -2 basis points to +102bps over bmk*
4-yr T-bond CZ4YT=RR +19 basis points to +111bps over bmk*
8-yr T-bond CZ8YT=RR +2 basis points to +128bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +4 basis points to +334bps over bmk*
5-yr T-bond PL5YT=RR +3 basis points to +265bps over bmk*
10-yr T-bond PL10YT=RR +1 basis points to +235bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +10 basis points to +889bps over bmk*
5-yr T-bond HU5YT=RR +14 basis points to +832bps over bmk*
10-yr T-bond HU10YT=RR +16 basis points to +665bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1631 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 []
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 Sandor Peto/Jason
Hovet)
