Currencies slide as markets eye EU budget veto developments

BUDAPEST: Central European currencies slid on Friday but were expected to rebound next year, according to a Reuters poll of analysts, who forecast the crown and the zloty would lead gains as the region recovers from the coronavirus pandemic.

Analysts forecast the crown would gain 2.3pc over the next 12 months and the zloty 2.4pc. Lagging behind was the forint, expected to edge up 0.5pc to 358.00 to the euro in the coming year.

The Hungarian forint slid 0.43pc and was trading at 358.50 per euro as markets waiting for developments regarding the European Union's budget and coronavirus rescue package.

Hungary and Poland have been holding up 1.85 trillion euros ($2.25 trillion) worth of funds because the money was linked to rule-of-law conditions.

"This is a normal market move, not a trend or a direction, as the forint has been trading between 356 and 360 this week," an FX trader based in Budapest said. "Statements by politicians do not raise the blood pressure of markets. They are waiting for real steps in the veto story."

Hungarian Prime Minister Viktor Orban said on Friday that the country still cannot accept a clause on respecting the rule of law, reiterating his earlier position.

Poland's stance on opposing the linking of EU funds to respect for the rule of law also remains unchanged, Polish government spokesman Piotr Muller said on Twitter on Friday.

The zloty edged down 0.04pc on the day to trade at 4.4730 per euro.

External factors such as the weak dollar and an increase in the MSCI EM index support the zloty, Alior Bank analysts wrote in a note.

"The ongoing negotiations on the EU budget may be the decisive factor ... Until the decisions are made, the zloty may be unstable," they added.

The Czech crown weakened 0.33pc to 26.491, off recent highs. In November, the crown posted its largest monthly gain since 2009.

Stock markets in the region strengthened, following global trends as world shares held at record highs, buoyed by growing prospects of a U.S. economic stimulus package.

Warsaw's equities led gains in the region, adding 1.92pc by 1100 GMT. Budapest's blue chip index was up 1.01pc and Prague firmed 0.99pc. Bucharest's stocks were up 0.12pc.