CEE currencies rebound

Hungary's forint led Central European currencies in a rebound from falls seen after a series of central bank interest rate cuts in the region in the past two weeks. Central banks ease policy to help their economy recover from recession or, in the case of Poland, to stop economic slowdown. The Czechs surprised by cutting the main central bank rate to near zero, while the Polish and the Hungarian banks reduced interest rates as expected.
The forint firmed half a percent against the euro by 1555 GMT to 283.18 shrugging off a deeper than expected fall in industrial output in September. "July-September figures leave hope that the economy may get out from technical recession," Takarekbank analyst Gergely Suppan said. Hungary has the highest government debt yields in the region and market participants said that even after a slight drop on Friday, those yields remain attractive, after rollercoaster trade in the past weeks. Three-year yields fell 5 basis points to 6.03 percent.
"I expect a 30-35 basis point range for the yields in the short term," one Budapest-based trader said. "Expectations are generally positive so there is a slow firming (of prices)." Commerzbank said in a note that suppressed US treasury yield levels and cheap money pumped into markets by the US central bank would support emerging market bonds, mainly foreign currency debt.
"Therefore we remain constructive on EM sovereign and corporate debt, but see limited room for significant spread compression in the near term," it said. Commerzbank said a meeting with Czech rate setters led it to the view that the central bank "will not ultimately engage in aggressive intervention (to weaken the Czech crown), especially if the German demand cycle were to anyway stabilise over the coming quarter".
The crown firmed 0.3 percent against the euro to 25.359, rebounding from 15-week lows. Czech inflation data and the minutes of last week's central bank meeting, when the base rate was cut to near zero, backed up the bank's dovish stance on Friday. "We still see names buying EUR/CZK continuously, but here below the 25.50 level, there are already a lot of names reducing their long (euro positions)," a Prague dealer said. "There is now a bit of a correction after a continuous move (weaker) over the last couple of days."
Czech inflation data was a touch higher than the median forecast in a Reuters poll, but analysts said the data showed an absence of demand-led price pressures. The zloty, the region's most liquid currency, was bid up 0.3 percent at 4.155 to the euro after touching a fresh seven-week low around 4.174, just off its 200-day moving average at 4.1719.
The zloty has weakened more than 1 percent since the central bank cut rates to 4.50 percent on Wednesday and flagged more easing, but the currency is still up 7 percent on the year after a yield-chasing rally that has gone cold in the past two months. Elsewhere, Romania's leu was flat at 4.521.