CEE currencies seen broadly flat

Central Europe's main currencies should mostly remain at similar levels over the next year, a Reuters poll of 39 analysts showed, as progress in US-China trade talks and the receding risk of a hard Brexit are offset by worries over global growth.

The Polish zloty, Hungarian forint and Czech crown rallied in October, buoyed by a boost to sentiment from progress in discussions over the UK's departure from the European Union and trade between the U.S and China.

However, the poll showed doubts these currencies can keep upward momentum against a background of slowing growth. "There is a temporary stabilization of risk aversion due to the limited risk of a hard Brexit and a partial US-China deal, amid a slowdown in domestic economies," said Krystian Jaworski, senior economist at Credit Agricole CIB.

According to the poll the Hungarian forint and Czech crown will be at the same level as today in 12 months' time. "China's economy is likely to slow much further and we think Germany's economy will be in recession until the middle of next year. Against this backdrop, CEE currencies are likely to struggle," said Liam Peach, Emerging Europe economist at Capital Economics.

The Polish zloty, the region's most liquid currency, is seen softening 0.9% versus current levels. "The recent rally in the Polish zloty looks slightly over done and we think it will give back some of its recent gains," said Peach.

The Romanian leu is seen weakening 1.4% over the coming year, affected by concerns over the country's unstable political situation and budget and current account deficits.

"Political uncertainties and a heavy election calendar ahead will weigh on RON with a risk of more pronounced depreciation in case of fiscal slippage related to extremely generous pension hikes scheduled for next year," said Jakub Kratky, financial analyst at Generali Investments CEE.

The centrist minority government of Romanian Prime Minister Ludovic Orban won a vote of confidence in parliament on Monday. His new cabinet will be in place until a parliamentary election is held next year, but is likely to struggle to win support from among the fragmented opposition to secure majorities for each bill.

The Serbian dinar is seen strengthening 0.4% over the next 12 months. "Dinar profits on a solid appetite for emerging markets bonds," said Kratky. "If the flow reverses, RSD could be beaten due to the prevailing high current account deficit."