Currencies rebound as dollar dips, Polish bonds ease

BUDAPEST/BELGRADE: Central European currencies and stocks mostly rebounded on Thursday as the dollar weakened, with the forint lifting off the two-month lows it hit this week.

After hitting 329 versus the euro on Wednesday, it was trading up 0.4 percent at 326.75 at 1326 GMT, outperforming the Czech crown despite Czech industrial output jumping 10.3 percent year on year in July, while Hungary's 6.2 percent rise was below forecasts.

And the zloty rose 0.3 percent even though the Polish central bank said on Wednesday that interest rates could stay at record lows until beyond the end of 2019.

The Polish government bond yield curve steepened, with the 10-year yield bid higher by 6 basis points at 3.295 percent. The bond hit its highest yield level in two months.

Hungary, whose central bank is also expected to reaffirm its loose policy stance at its meeting on Sept. 18, has already seen a surge in yields earlier this year. Its 10-year yield was fixed flat at 3.56 percent.

The yield on corresponding Czech bonds ticked up by 2 basis points to 2.125 percent, supported by short supply after the government cancelled an auction of 2029-expiry bonds.

Societe Generale said in a note that emerging market currencies could weaken further in the next year, and Central European 10-year bond yields could see the biggest increase apart from Brazil.

"Contagion (in emerging markets) via sentiment and portfolio de-risking is more likely than direct macro/financial spill-overs," the note said.

Views are split over the near-term outlook of the region's assets. Raiffeisen analysts said in a note regional currencies could recover, providing support to Polish government bonds.

A Reuters poll of analysts reflected expectations that pressure on the region's main currencies from the dollar's strength and jitters in other emerging markets including Turkey could ease already in the short-term.

The survey predicted a firming of about one percent in the forint and the zloty against the euro by the end of the month relative to Wednesday's closing levels.

Over the coming year, the prospect of tighter monetary policy in the euro zone could help the forint gain 2.9 percent, the zloty 2.3 percent and the crown 2.6 percent, according to the poll.

Serbia's central bank kept the region's highest benchmark rate on hold at 3 percent at its meeting on Thursday.

The dinar eased slightly.