Zloty leads fx gains on Fed, crown gives up ground

BUDAPEST/PRAGUE: Central European markets firmed across the board on Thursday, with the zloty leading a rise of currencies, after the Federal Reserve signalled that its interest rate hike cycle may have ended.

The prospect of lower than expected US interest rates made risky assets more attractive.

The zloty jumped 0.65 percent to 4.2609 against the euro by 1439 GMT, after touching 5-month highs on the firm side of the 4.26 line.

In the past weeks it underperformed its regional peer, the forint, which got a boost from hawkish central bank comments.

Against the forint the zloty rebounded from Wednesday's 8-month lows. The forint initially rose versus the euro to its strongest levels since May, but then gave up ground.

Hungarian bonds drew robust demand at an auction and a top-up tender. The government sold almost 100 billion forints ($363.24 million) worth of papers, almost twice its initial offer.

The yield on Hungary's 10-year government bonds was fixed lower by 10 basis points at 2.74 percent, almost closing a gap with Poland's corresponding yield, even though the latter tested 2-and-1/2-yer lows, shedding 5 basis points to 2.72 percent.

The crown gave up part of its initial gains. At 25.75 against the euro, it was still firmer by 0.2 percent from Wednesday.

Czech central bank Governor Jiri Rusnok said on Czech television late on Wednesday that the bank could deliver between zero and two interest rate hikes this year.

One Prague-based dealer said the crown was choppy hit by the latest comments from rate setters.

"At the beginning of the year it was sure (of a rate hike)," the dealer said. "Now it is different. Nobody on the market is 100 percent persuaded of what will happen."

The European Central Bank's policy course has a bigger, even though limited, impact on the CNB than the Fed, Patria Finance analyst Jan Bures said.

"For now I believe the external risks connected with much weaker German figures and Brexit are more important factors that should make even the CNB to take a break in the hiking cycle for a while," he added.

The leu surged 0.6 percent to 4.7219 versus the euro, drifting further away from record lows hit last week in response to worries over the Romanian government's new tax on banks.

"There has been a bit of panic over the past days and now it seems that some foreign players have begun ... to throw back some euros into the market ... but nobody can estimate how long will it last," said a dealer with a foreign bank in Bucharest.