Forint-led central European currencies lower

The forint-led central European currencies lower on Friday and Hungarian bond yields stayed near multi-year lows in hectic trade as investors digested a deficit-cutting package that relies heavily on tax hikes. The forint weakened by half a percent against the euro to 279.26, moving away from an eight-week high hit on Thursday.
The zloty eased 0.2 percent to 4.106 in Poland where, as in Hungary, the central bank is seen cutting interest rates soon to help the economy. Political uncertainty pushed the Czech crown down by 0.3 percent to 24.837. Hungary's 10-year borrowing costs fell to their lowest in at least 2-1/2 years at a bond auction on Thursday after the government announced measures to rein in the budget deficit and help avert the threat of a cut in EU subsidies.
However, higher taxes on banks risk stifling economic growth and have revived doubts about whether the government really wants to bring dragging talks on international aid to a successful conclusion. Position closing ahead of a four-day weekend in Hungary kept the forint volatile and government bonds were jittery after their recent rally. "All this is about high liquidity in international markets and this means a rally in the Hungarian market can restart any time," one Budapest-based fixed income trader said. "Fundamentals are totally ignored."
The key question hanging over Hungary's new budget steps is whether their focus on taxation rather than spending cuts will be acceptable to the European Union and International Monetary Fund, from whom Hungary seeks aid. "The EU has until November 7 to review Hungary's latest deficit-cutting measures, but any substantial opinion from Brussels may move markets somewhat," a dealer in Budapest said. Poland's bonds were strong ahead of a big auction on Tuesday and 5-year yields stayed close to a record low.
The chances increased for a central bank rate cut next month after disappointing economic data this week, one rate-setter was reported as saying on Friday. In Romania, investors are eyeing an election in December. It is unclear what sort of government will emerge and in the meantime policy delays are raising some doubts over how closely Romania is sticking to its funding deal with the IMF. The leu eased 0.1 percent to 4.577 to the euro. The region's stock markets mostly eased, with Warsaw's main index and Prague both shedding 0.8 percent, while Budapest gained 0.6 percent.