BUDAPEST: Central European markets took a breather on Friday after a recovery in bond prices in the previous session, with the main currencies rebounding from multi-month lows set in early trade.
The currencies dropped in early trade before rebounding as a continued strengthening of the dollar stopped short of the 1.17 line versus the euro.
Its rally and a rise in US 10-year yields this month have caused a sell-off in emerging markets, which also engulfed Central Europe's fast-growing and mostly stable economies.
Regional markets mostly calmed down by Thursday as the US yield retreated below 3 percent after the Federal Reserve's minutes did not signal a pick-up in its pace to raise rates, and have stayed there.
But concerns remain that a possible further strengthening of the dollar could fuel selling in emerging markets.
The forint touched a new 23-month low against the euro early on Friday, the zloty set a new 6-and-1/2-month low and the Czech crown approached this year's weakest levels.
The region's currencies were mixed at 0843 GMT, after the dollar's firming lost steam, with the zloty trading at 4.3041 versus the euro, up a quarter of a percent, while the crown was still weaker by 0.1 percent at 25.805.
"In our opinion there is not much room for the further weakening of the zloty against the euro," BZ WBK analysts said in a note, adding though that their underlying assumption was no more firming by the dollar against the euro.
The leu was steady at 4.6301 against the euro.
The Romanian unit, which is more closely managed by the central bank than its more liquid regional peers, has not only weathered the global storm but even firmed this week.
On Thursday it reached its strongest level this year apart from one day in early January, just before the Romanian central bank delivered its first hike in its benchmark rate in a decade.
Since then it raised rates two more times and eyes more tightening as inflation has risen to 5-year highs, and Romanian government bond yields have reached 4-year highs.
New pledges from the ruling party to maintain its wage- and pension-boosting policy are unlikely to reverse a slowdown in economic growth to about 4 percent, while the risk of budget overshoots remains, market participants said.
The central bank could slow its pace of tightening, but the next hike may come soon, Horia Braun Erdei, Erste group's chief economist in Romania, said in a note.
"One such preventive hike could come in the summer, if emerging market sentiment were to continue its current bad patch and eventually engulf the EURRON exchange rate, which is so far enjoying a fine strengthening ride supported by a positive carry-to-volatility," he said.
Government bonds in the region including Romanian papers were mixed, not extending Thursday's retreat in yields which helped Hungary, Poland and Romania smoothly sell the bonds they offered at their auctions.
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