Romanian leu, Hungarian forint soar

The Romanian leu hit a 16-month high on Friday and the Hungarian forint reached a two-week peak as strong US jobs data kept demand up for emerging Europe's higher-yielding assets. Currencies mostly extended gains from Thursday when an ECB rate cut widened the differential with central Europe, where most central banks have already cut borrowing costs to spur economies, although rates are still well above the euro zone.
Dealers said, though, that a recent rally may slowly run out of steam after strong gains prompt investor to book profits. The forint has jumped this week by 2.4 percent, and bid up 0.3 percent on Friday at 295.4 to the euro. "Both the ECB and the Fed have convinced markets that the money print will not relax," a Budapest trader said. "Investors are gobbling up everything... The market is very nervous; market movements are too big. Flows are also huge."
Hungarian bond yields fell up to 22 basis points, putting the yield on 10-year paper under 5 percent at 4.97. The Czech crown was flat and the Polish zloty dipped 0.1 percent in afternoon trade. Europe's eastern ex-communist states, which export mainly to the euro zone, have been also lowering borrowing costs to prop up economies that are in recession or slowing sharply.
But Hungary's main rate of 4.75 percent is way above the ECB's 0.5 percent, as is Poland's 3.25 percent benchmark rate. The Czech and Romanian central banks both stayed on hold with rates on Thursday. Czech rates are already at near zero, and the bank repeated it stood ready to intervene to weaken the crown, if needed, to further ease policy. Romania, with a main rate of 5.25 percent, has held off on rate cuts because of nagging inflation worries but said it would soon lower borrowing costs to help the economy.
"We assume that the economic weakness and the therefore more expansionary Romanian central bank will end RON's appreciation trend as soon as markets direct their attention back to local factors," Commerzbank said. The leu, which has gained 3.3 percent this year because of growing demand for Romania's bonds, rose 0.4 percent to 4.301 to the euro on Friday.