Central European currencies are expected to give up some ground against the euro before seeing gains next year as the euro zone crisis and the prospect of central bank interest rate cuts cloud the short-term outlook, a Reuters poll showed on Wednesday.
But the September 3-5 survey of around 30 analysts projects 2-3 percent gains on the 12-month horizon for the European Union's (EU) eastern currencies. The analysts assumed euro zone policymakers would agree on steps to manage the bloc's crisis and that economies in the EU's eastern wing would continue to converge with richer Western states.
According to the consensus forecasts the Czech crown could still shed 0.5 percent against the euro from Tuesday's close in the next three months to 25.00.
Romania's leu could weaken to 4.5. The Hungarian forint and the Polish zloty could retreat to 285 and 4.2 respectively.
"We had a nice summer rally on emerging markets FX and September is full of event risks. I think people are cautious and see the European risks re-emerging," Nordea analyst Aurelija Augulyte said. The gains in emerging European currencies, led by a 10 percent rise of the forint this year, have been helped in past weeks by expectations for cheap money being pumped into markets by the European Central Bank and the Federal Reserve.
The key short-term risk for Central European asset prices is that the central banks may not deliver on those hopes while political tension in the euro zone clouds the European outlook.
"In general September hasn't been a good month historically for risk, stocks," Augulyte said. "And liquidity improves after summer as everyone gets back from holiday - trends may change."
The crown and forint are expected to strengthen by more than 2 percent versus the euro in the next 12 months, while the zloty and leu will gain around 3 percent. In contrast with earlier polls when analysts usually differentiated between currencies based on economic and political fundamentals, the latest poll saw the region behaving as a bloc.
"This also underpins that all analysts are thinking in international trends now," said K&H Bank analyst Gyorgy Barcza. Several analysts said that their forecasts were based on optimistic assumptions concerning domestic developments. For example, elections in Romania in November could ease political uncertainty there, while the forint has been buoyed by expectations that Hungary will secure an international aid deal in the coming months.
"My forecasts include the assumption that there will be a deal with the IMF in the first quarter but I may review that as a deal looks less and less likely," said Janos Samu of Concorde.
Barcza said the Hungarian government's track record showed that it would be willing to compromise with the lenders except when Hungarian asset prices fall. "Then they would step (into action), but as long as markets are calm, they may not," he said.
Rapid monetary easing is also a risk to regional currencies as Europe's economic slowdown has pushed the Czechs and Hungary into recession and Poland's growth is decelerating. "The mid-September euro zone uncertainties should provide extra volatility and reinforce the negative impact of the dovish signals from the MPC (central bank) side," said ING's Rafal Benecki.
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