Central Europe's liquid currencies down

03 Jul, 2018

Central Europe's liquid currencies fell, with the forint hitting record lows against the euro on Monday as Germany's coalition crisis prompted yet more selling of Central European assets. Germany's ruling coalition has been shaken by a conflict over migration between Chancellor Angela Merkel and the Bavarian CSU party.
The crisis weighed on the euro and helped the dollar which has also been boosted by fears that an ongoing trade war may curb economic growth outside the United States. Capital flows into the dollar has knocked down assets in emerging markets including Central Europe in the past months.
Loose monetary policies have left the forint and the zloty particularly exposed, and the crown
has also weakened even though the Czech central bank (CNB) has been increasing its interest rates.
The region's main currencies traded around key psychological lines on Monday: the forint and the crown on the weak side of 330 and 26 against the euro, respectively, while the zloty approached 4.4.
The crown, trading at 26.05 at 1429 GMT, shed 0.2 percent on Monday and 2 percent so far this year.
The forint, after touching a record low at 330.7, firmed to 330.47, down 0.2 percent from Friday and almost 6 percent since the end of 2017.
The currencies have failed to benefit from a rate rise delivered by the CNB last week, and a shift by the Hungarian central bank (NBH) to less dovish rhetoric two weeks ago.
The NBH is under pressure to tighten policy or risk further forint weakening and a rise in inflation, one Budapest-based money market dealer said, adding that forward rate agreements had priced in an NBH rate hike around the end of 2018.
The zloty has eased almost as much as the forint so far this year. Its half percent weakening on Monday brings it to 5 percent weaker levels from the end of last year.
It was worst hit in the region on Monday, after Poland reported upbeat June PMI manufacturing sentiment figures and data showing that inflation fell to 1.9 percent in June from 2 percent in May.

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